Markets Insights

US-China trade truce, earnings remain in focus

Workers loading goods for export at a port in Lianyungang, China's Jiangsu province. The potential signing of a "phase one" US-China trade deal and rollback of some tariffs have contributed substantially to the US stock rally but the proposals have y
Workers loading goods for export at a port in Lianyungang, China's Jiangsu province.PHOTO: REUTERS

Some analysts worry near-term investor sentiment may be getting 'a bit too frothy'

Developments in the trade war and corporate earnings are set to continue to sway trading this week.

Global investors have been cheered in recent days by hopes of a "phase one" United States-China deal that would include a tariff rollback, but subsequent comments from US President Donald Trump may reduce some of the optimism.

A successful first-phase deal will be a positive factor for sentiment and financial conditions, Bank of Singapore strategists said in a report on Friday.

It would also add to the likelihood of the bank's baseline scenario of growth stabilisation next year, they noted, citing firmer economic data across the region, such as the latest industrial production figures from Japan and South Korea.

Against this backdrop, the bank had said it was increasing its position in Asia ex-Japan equities from "underweight" to "neutral".

"Asian economies stand at the forefront of the trade war and will be key beneficiaries of a China-US truce. Within Asia, we favour Singapore, Hong Kong, Indonesia and the Philippines, and we see attractive selective opportunities in the property, infrastructure and healthcare sectors," it noted.

But Mr Trump later told the media on Friday that the US has not agreed to roll back all tariffs on China, contradicting earlier claims by the Chinese government.

 
 
 

"They'd like to have a rollback, I haven't agreed to anything," the US President said. "China would like to get somewhat of a rollback - not a complete rollback, because they know I won't do it."

Amid all this, bank and stock brokerage firm Charles Schwab's analysts are also getting concerned that near-term investor sentiment may be getting "a bit too frothy".

The potential signing of a "phase one" US-China trade deal and rollback of some tariffs have contributed substantially to the rally in US stocks but the proposals made have yet to be corroborated by anything in writing, wrote the analysts.

"Further, absent a trade deal that covers the major structural issues surrounding intellectual property theft, technology transfers and supply chains, we find it difficult to envision a resurgence in corporate animal spirits and business investment - stabilisation is more likely."

Meanwhile, the Singapore earnings calendar remains in high gear with around 40 listed companies reporting.

DBS is announcing third-quarter earnings this morning before markets open.

UOB Kay Hian analyst Jonathan Koh expects DBS to be on track for mid-single-digit loan growth this year, supported by non-trade loans.

Rivals United Overseas Bank and OCBC Bank recorded loan growths in the third quarter, although UOB recorded a higher net profit while OCBC's slipped on the back of a one-off charge. The trio are heavyweight constituents of the Straits Times Index.

Other companies on the index posting results include City Developments after markets close tomorrow; ComfortDelGro on Wednesday, also after markets close; and Singtel on Thursday before markets open.

DBS Research has a "hold" call on Singtel, with a target price of $3.12, according to an October report.

"Singtel's 2020/2021 (financial year) forecast consensus earnings could be cut 10 per cent/8 per cent due to the delay in Bharti Airtel's profitability, meagre growth from Telkomsel and a weak Australian dollar," said analyst Sachin Mittal.

A version of this article appeared in the print edition of The Straits Times on November 11, 2019, with the headline 'US-China trade truce, earnings remain in focus'. Print Edition | Subscribe