How the US trade war with China could hit Singapore stocks

Singapore durian vendorSingapore durian fruit

If the Trump administration proceeds with proposals to slap further tariffs on imports from China, that could send Singapore’s Straits Times Index as low as around 3050, DBS said in its September strategy note last week.

It noted that the Trump administration could push for a full and rapid implementation of the proposed 25 percent tariff on US$200 billion of Chinese imports even before the November mid-term elections. U.S. President Trump has since threatened to impose tariffs on all imports from China, with the mainland set to swiftly retaliate.

The Straits Times Index ended Friday down 0.42 percent at 3134.39.

Banks would be the main drag on the STI if the tariffs are enacted, DBS said.

“Under this backdrop, business sentiment will be negatively affected and the pace of business loans may slow down. The Fed could also moderate the pace of interest rate hikes going forward,” DBS said.

Banks’ net interest margins, or the difference between the loan rates they charge their customers and their cost of providing financing, tend to rise with interest rate hikes.

Both OCBC and UOB would be vulnerable to profit-taking if macro uncertainties worsen, DBS said, adding that sector earnings growth was set to moderate significantly from 32 percent this year to 6.4 percent next year.

On the upside, DBS said that oil and gas stocks could see positives ahead, and it raised its average Brent crude oil forecasts for 2018 and 2019 to US$74 a barrel and US$76 a barrel respectively, up from US$73 and US$70 previously.

“We think the market may not have fully factored in the impact of the U.S. sanctions on Iran as the rest of the OPEC cartel may not have enough spare capacity to ramp up sufficiently to fully offset the 2.5 million bbls export losses from Iran, as Venezuelan production continues to fall and unplanned outages could be expected from the likes of Libya, Nigeria and Angola,” it said.

While shares of Singapore rigbuilders appear to have ignored the oil price recovery, with second-quarter results disappointing, sector interest could pick up if Brent tests or exceeds US$80 a barrel, DBS said.

It tipped Sembcorp Marine as the most sensitive to oil-price changes, followed by Sembcorp Industries and Keppel Corp.

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