Singapore stocks give up most gains from US-China tariff reprieve as Asia relief rally cools

SINGAPORE - Stock markets in Asia on May 13 lost or trimmed earlier gains from a relief rally on hopes a

90-day tariff truce

will mark the end of an all-out trade war between the US and China.

Analysts said the immediate euphoria after the May 12 announcement has given way to growing caution over the tough road ahead to reach a permanent and comprehensive trade deal.

In Singapore, the Straits Times Index (STI) jumped 1.89 per cent to 3,949.29 when the market opened. But it lost almost all of its gains to close up just 0.1 per cent at 3,881.05.

Other Asian markets also pared earlier gains, with Japan’s Nikkei index closing 1.4 per cent higher, Australia’s ASX200 adding 0.4 per cent, and South Korea’s Kospi index ending almost unchanged.

Hong Kong’s Hang Seng Index reversed its 1.3 per cent jump the previous day to drop 1.9 per cent, while the Shanghai Composite Index edged up just 0.2 per cent.

On Wall Street on May 12, the blue-chip Dow Jones Industrial Average had rallied 1,160 points, or 2.8 per cent, while the broader S&P 500 surged 3.3 per cent, and the tech-heavy Nasdaq 100 Index soared 4.35 per cent back into a bull market.

The US dollar, meanwhile, jumped more than 1 per cent on May 12 for its best one-day move since Nov 6, in the immediate aftermath of Mr Donald Trump’s victory in the US presidential election.

Against the Singapore currency, the US dollar shot up 0.8 per cent to 1.308 on May 12 from around 1.297 on May 9. It was trading at 1.3037 per Singapore dollar as at noon on May 13.

Under the surprise deal, which will last for 90 days, US exports to China will see tariffs reduced to 10 per cent from 125 per cent. Meanwhile, tariffs on Chinese exports to the US will be lowered to 30 per cent from 145 per cent.

Morningstar Equity Research analysts Kai Wang and Kathy Chan said the tariff reductions were greater than expected, and should benefit certain sectors.

“We do think a recovery should be imminent, based on the progress made. Certain sectors should see higher appreciation during the market upswing, with the technology, communication services, and consumer cyclical sectors benefiting the most during the recovery period,” they said.

However, they also cautioned that although the worst may be over, “the road to full recovery may still be bumpy, as US President Donald Trump has a history of changing course and making maximalist proposals”.

JP Morgan Asset Management chief market strategist for the Asia-Pacific Tai Hui said the immediate market reaction has been positive, noting that Hong Kong stock indexes and US equities futures both rose.

“Overall, we expect the market to get back to a risk-on sentiment in the near term. Pressure on the Fed to cut rates may also ease for the time being,” he said.

OCBC Bank chief economist Selena Ling said the deal “buys some time” where the tariffs are brought back from “sky-high levels to more manageable levels”, leading to market relief.

“However, the caveat is that it is not a permanent agreement. As such, there are still inherent uncertainties,” she said.

She also pointed out that there are no specific purchasing commitments, unlike in the 2020 trade deal that Mr Trump signed with Beijing that required China to increase purchases of US exports by US$200 billion (S$261 billion) over two years.

“There is a permanent dialogue channel but no dispute resolution panel; and the sectoral tariffs (for semiconductors and pharmaceuticals, for instance) are still pending,” Ms Ling added.

“So, it is a positive start to de-escalation, but still a long road ahead for negotiations,” she said.

Bank of Singapore chief investment strategist Eli Lee said the US-China trade de-escalation is deeper and faster than widely expected, and will serve as a positive near-term catalyst for risk assets, especially for sectors and companies most exposed to the US-China tariff war.

He noted that after the announcement, the US 10-year Treasury yield moved higher, US equities rallied, and the US dollar strengthened, in line with what analysts expected to see with firmer US growth expectations.

“Our base case remains that the US Federal Reserve will take a wait-and-see approach and cut rates only once in 2025,” he said.

He also said this bodes well for what can be expected from US trade talks with other countries.

Singapore bank stocks surged in early trading on the economic benefits from the US-China tariff reprieve, before moderating.

DBS Bank’s share price shot up to $44.68, before closing up 1.2 per cent at $44.23, while UOB climbed as high as $36.68 before ending up 1.6 per cent at $35.37. OCBC Bank saw its shares advance to $16.55 before they closed up 0.7 per cent at $16.35.

The tariff reprieve also boosted the shares of companies in the shipping industry.

Yangzijiang Shipbuilding saw its shares hit a morning high of $2.29, before closing up 4.25 per cent at $2.21.

DBS economist Chua Han Teng said: “A potential temporary rush in Chinese export orders to the US during the 90-day tariff truce period, driven by exporters capitalising on lower tariffs, would positively impact Singapore’s exports.”

However, he said economic growth is still likely to slow in 2025, as uncertainty related to trade policies will still weigh on business investments, hiring decisions and consumer confidence.

“Trade frictions will still dampen Singapore’s exports performance in 2025 even if less severe than previously anticipated,” he said.