US-China trade jitters continued to weigh on stocks

Date: August 13, 2019

  • STI fell almost 3% over the week to 3,168.94;
  • Fresh concerns on US-China trade front was main reason;
  • US labelled China a currency manipulator;
  • SGX to raise regulatory bar;
  • Singtel’s 1Q net profit fell to 16-year low;
  • Yangzijiang’s shares crashed 20% amidst rumours of probe into individual linked to the company


No real surprises as fresh US-China trade developments hit markets

Regular readers would know that the main forces influencing stock prices since the start of the year are the direction of interest rates and the US-China trade conflict.

They would also know that the two are not mutually exclusive because if trade problems start to hit economic growth, then central banks would have to cut rates to try and stimulate growth.

Last but not least, readers would also recognise that notwithstanding frequent indications that US-China talks might be on the verge of a settlement, none has so far been reached. Judging by last week’s developments, it looks very much that we are as far away from a breakthrough now as we were when the Trump administration launched its attack on China some two years ago.

US labelled China a currency manipulator, imposed more tariffs

Over the course of the week risk assets around the world were jolted when the US labelled China a currency manipulator a day after Trump announced a 10% tariff on US$300b worth of Chinese goods that would take effect at the start of next month.

China’s central bank responded by saying such a label would “severely damage international financial order and cause chaos in financial markets’’, adding that it “has not used and will not use the exchange rate to deal with trade disputes’’.

The US’s accusation against China last Tuesday came less than three weeks after the International Monetary Fund said the yuan’s value was in line with China’s economic fundamentals, whilst the US dollar was overvalued by 6-12%. At that stage the yuan had dropped 2.7% against the dollar in three days, reaching an 11-year low.

Soon after however, intervention by the Chinese central bank steadied the market’s nerves, bringing on a bout of short-covering that eased pressure on the major indices. On Thursday however, the selling resumed and for the week the Straits Times Index registered a nett loss of 93 points or 2.9% at 3,168.94.

SGX RegCo to raise regulatory bar

The regulatory arm of the Singapore Exchange (SGX RegCo) plans to introduce new initiatives in a change of approach to market regulation that envisages the development of a market neighbourhood watch.

Measures include setting up a whistleblowing office and stricter inspection of the market professionals, starting with Catalist sponsors, said Tan Boon Gin, SGX RegCo chief executive officer who was speaking at the launch of the Singapore Governance and Transparency Index on Wednesday.

“We want to assure the market that we take whistle-blowing seriously and that we are committed to following up on any information that we receive in accordance with a public policy that we are going to publish on our website that deals with, among other things, how we maintain the confidentiality of the information,” Mr Tan said.

Trade war: which sectors would be hit?

In a Wednesday Business Times report, DBS’s regional equity strategist Joanne Goh was quoted as saying tech and the exports sector will bear the brunt of a trade-war related selloff because China exports subjected to the new tariffs are consumer-related products.

“We continue to see volatility in markets and downside can still be expected’’ said Ms Goh. “Responses from China and the US are still unpredictable. At some point we believe value will emerge but this is not the time yet’’.

Similarly, CMC Markets analyst Margaret Yang in the same report said she did not think a market bottom is close yet and that more volatility lies ahead. 

Singtel’s 1Q dropped to 16-year low

Singtel has been in the news lately, following outlook downgrades by ratings agencies S&P and Fitch. Last week in a 6 Aug report, DBS Group Research said it is maintaining its “HOLD’’ on Singtel with a revised target price of S$3.40.

“We lower our sum-of-the-parts valuation to S$3.40 from S$3.60 earlier as we (a) trim Telkomsel’s valuation by 12% on slower growth prospects, (b) raise our hold company’s discount to 16% (14% earlier) to reflect slower associates’ recovery’’ said the broker.

On Thursday, the telco reported a 35% fall in first quarter net profit to $541, affected by losses in its Indian associate Bharti and as well as higher depreciation and amortisation. The stock fell 3 cents to $3.26 on volume of 19m shares traded.

Yangzijang’s shares crashed

China shipbuilding firm Yangzijiang’s shares on Thursday crashed 26 cents or 20% to $1.04 on heavy volume of 83.7m, drawing a query from the exchange. The company halted trading and said there would be an announcement. The Business Times on Friday said global shipping news service Tradewinds reported that “a veteran political patron of the shipbuilding industry’’ named Liu Jianguo, who is said to be “deeply connected’’ to Yangzijiang, is being probed for “serious disciplinary violations’’.

DBS Group Research cautious on OCBC

In another report, DBS said it remains cautious on OCBC and is maintaining a “hold’’ with S$11.50 target price because of the bank’s non-performing assets coverage which at 78% remains the lowest of the three local banks. The broker also said it thinks OCBC’s dividend policy will continue to weigh on the near-term share price performance.