Trump's tariff threat, tepid China data fuel recession fears

The outlook could worsen if additional US tariffs are imposed on the remaining US$300 billion of Chinese exports to the US.
The outlook could worsen if additional US tariffs are imposed on the remaining US$300 billion of Chinese exports to the US.PHOTO: REUTERS

A dramatic threat from United States President Donald Trump to impose tariffs on Mexican goods blindsided already fragile markets across the world yesterday and left investors wondering when the next blow will land.

The surprising move came on a day when China released unexpectedly disappointing manufacturing numbers - a double whammy that sent a chill through export-dependent nations like Singapore.

It also came during what has been a brutal month for investors, with the Straits Times Index (STI) plunging 8.5 per cent, or 289.26 points, since hitting a year-to-date high of 3,407.02 on April 29.

As if in unison, Wall Street dived 300 points, or 1.2 per cent, at yesterday's opening on fears that Mr Trump's latest move could risk sending the US economy into a recession.

Local investors are not running for the hills yet, but they are starting to retreat, said CIMB Private Banking economist Song Seng Wun.

"Fears of a global recession have increased, especially if Trump continues to ratchet up the trade fight with China, Mexico and whoever is next, and we find the fall in orders accelerating," he added.

The STI managed to contain the damage yesterday, losing 0.8 per cent to 3,117.76.

 
 
 

Economists blamed China's tepid data last month on worsening trade relations with the US after both sides imposed more tariffs on each other. The tariffs on US$60 billion in US goods in retaliation for the higher duties on US$200 billion worth of Chinese products kick in today.

The outlook could worsen if additional US tariffs are imposed on the remaining US$300 billion of Chinese exports to the US after the Group of 20 meeting this month.

The sell-off here yesterday was broad-based, with eight of the 30 blue-chip counters that make up the STI "within a 5 per cent range of 52-week lows", said UOB KayHian trader Brandon Leu. "The worst part is, there seems to be no end in sight to the trade war. We will be testing 3,100 shortly, and if that breaks, 3,000 is the next big support."

The STI last fell below 3,000 in October last year.

Banks and property counters led the sell-off, with all three lenders ending down more than 1 per cent.

"Banks are now trading at very attractive levels at book value. Property counters are trading at an average of 20 per cent to 30 per cent discount to book value," said Phillip Capital trader Marcus Toh.

Property giants CapitaLand, City Developments and Far East Orchard have slipped to levels last seen in January, while Yanlord Land and Genting Singapore are back to prices of last October and Singapore Airlines is at a 10-year low.

DBS group research chief economist Taimur Baig and economist Irvin Seah believe the Singapore market is unlikely to be spared from volatility, with risks ahead in the coming weeks. "However, we think there is enough valuation cushion to support the Singapore market, even if US tariffs rise, provided US-China trade talks continue to take place."

 
A version of this article appeared in the print edition of The Straits Times on June 01, 2019, with the headline 'Trump's tariff threat, tepid China data fuel recession fears'. Print Edition | Subscribe