STI gained 0.9% on US-China trade optimism

Date: February 25, 2019

  • The STI rose 30 points or 0.9% over the week to 3,269.90;
  • US-China trade talks appear to be on a positive track but obstacles remain;
  • Also in focus were the Fed’s minutes;
  • Local banks released their latest figures;
  • Best World in focus with a weekend reply to a Business Times article;
  • Government’s latest Budget focused on continued economic restructuring


 The state of US-China trade talks and the minutes of the US Federal Reserve’s latest Open Markets Committee meeting provided the two main focal points for last week, during which the Straits Times Index, responding mainly to movements in the US futures market, added 30 points or just under 1% to end at 3,269.90.

As for the local market, banks were the main focus as all three reported their latest figures. Turnover averaged $1.05 per day, not particularly encouraging given that $1b is estimated to be the broking industry’s breakeven level.

US-China trade talks

On Tuesday, reports emerged that the US asked China to keep the value of the yuan stable as part of the negotiations, a move aimed at neutralizing any effort by Beijing to devalue its currency to counter American tariffs, people familiar with the ongoing talks said.

On Thursday, reports emerged that China has agreed to the currency demand but no details were released. On Friday and Saturday it was announced that China’s negotiators would extend their stay in Washington to continue talks, whilst US said that it is optimistic that a deal would be struck. Both sides are rushing to try and reach an agreement before the 1 March deadline when tariffs on US$200b of China’s goods would start.

Washington wants Beijing to make changes to its economic policies, which it says unfairly favour domestic companies through subsidies and other support. China in response has offered to increase purchases of US goods, such as soybeans and semiconductors – a move that could reduce the US trade deficit.

However, China is unlikely to embrace broader structural changes, which are seen by some internally as a way to contain its rise. On Friday, BBC News reported that US Trade Representative Robert Lighthizer, who has been leading talks for the US, warned that “major hurdles” remain before a final agreement can be signed.

US Fed minutes

According to the minutes of the latest FOMC meeting, Federal Reserve officials widely favour ending the runoff of the central bank’s balance sheet this year while expressing uncertainty over whether they would raise interest rates again in 2019.

“Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve’s asset holdings later this year,” according to the minutes of the January meeting that was released on Wednesday.

Local banks report their numbers

DBS was the first of the three local banks to report its latest numbers when on Monday it said net profit for its 4Q rose 10% to $1.32b, just below the consensus estimate of $1.34b. It declared a final dividend of 60 cents per share, bringing the total for 2018 to $1.20.

UOB later in the week announced net profit of $916m for the 4Q, up 7% from 2017, while OCBC’s net profit for the 4Q was 11% down at $926m.

UOB-Kay Hian maintained its “buy’’ on DBS, citing decent growth and the fact that the bank is strengthening its management team. It set a target price of $28.40 versus Friday’s closing price of $25.01. CGS-CIMB also recommended investors buy the stock and set a fair value of $29.

DBS-Vickers to be restructured

DBS last week said it would transfer its retail equity trading under DBS Vickers to the main bank by the end of the year, leaving the securities and derivatives arm to focus on institutional clients. The bank said it has noticed a growing demand among customers for a one-stop platform with a full array of banking, broking and wealth management functions.

DBS Vickers employees will be offered new jobs in the bank, while DBS said it would do its best to offer new roles for remisiers who are technically self-employed.

Best World International

One of the more notable incidents of the week involved beauty products seller Best World International, whose shares have been rising almost non-stop for the past two years, gaining 171 % in the past 12 months alone.

The Business Times in a detailed report last Monday said the company has been queried nine times by the Singapore Exchange in the past two years over its share price movements. The newspaper also reported that the main reason for the strong stock price performance is strong sales growth in China but added that it found it “challenging to figure out just how and where those sales are taking place…’’.

It quoted DBS Group Research analyst Carmen Tay as writing “given challenges in reconciling upfront sales figures and underlying consumer demand in China which have yet to be addressed by (Best World’s) new franchise model, we will suspend coverage for now’’.

On Monday, Best World’s shares crashed almost 17% to $2.71 before trading was halted just before the lunch break by the company, pending an announcement. The company over the weekend released a detailed announcement to address the questions raised by the BT article and requested trading to resume on Monday.

The 2019 Budget

As for the Budget, among the significant announcements was that $4.6b will be set aside over three years to help firms and workers build capabilities to stay relevant, a $6.1b Merdeka package of healthcare subsidies for those born in the 1950s, a $1.1b Bicentennial bonus and $5.1b to fund Medifund and CareShield Life. There will also be

Observers have noted that the Budget focused on restructuring the economy and that Finance Minister Heng Swee Keat, when delivering the Budget, spoke of concerns surrounding defence and security.