Business

War fears may dampen recent optimism

The US and its British and French allies launching targeted military strikes on Syria over the weekend will likely dent trading sentiments in the local bourse over this week. That plus the sell-off in Wall Street last Friday led by banking stocks could see a wobbly start for the local equity market.

These factors could dampen the optimism that had dominated the Singapore bourse last week, fuelled by Chinese President Xi Jinping's conciliatory tone on the trade tensions between his country and the US as well as favourable growth data from home.

All three key US stock indices ended last week on a sour note following a batch of earnings reports from large US banks that surpassed analyst expectations but witnessed a sell-off in their shares as the strong results had already been priced in earlier.

The Dow Jones Industrial Average and tech-heavy Nasdaq slipped 0.5 per cent while the broad-based S&P 500 lost 0.3 per cent.

White House politics and geopolitical tension could remain themes to monitor in the fresh week alongside a slew of data including China's first quarter growth results, US retail sales results (growth has been sluggish since November last year), inflation and trade data out of Japan and a series of Fed speakers.

All eyes will be on China's March quarter growth, said Moody's Analytics, adding it expects a 6.7 per cent year-on-year growth, slower than the December quarter's 6.8 per cent.

"China's economy continues to grow at its potential pace," it added.

"More importantly, accompanying the (gross domestic product) release will be China's March retail sales, industrial production and fixed asset investments data, the first since the Chinese New Year holidays," said IG market strategist Jingyi Pan.

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"This would offer better insights into how the economic conditions had been trending as compared to the headline GDP, which could find corresponding market reactions here in Asia."

Singapore will release data on non-oil domestic exports for March; it reported a 5.9 per cent slump in February as a result of the Chinese New Year holidays, hence the March data will be closely watched since it is the "first clean reading" after the festivities affected January and February data, said Moody's Analytics.

"Electronics will be a focus as an input to how the global tech cycle is faring. The electronics category has endured three consecutive months of annual declines, surprising given that other indicators of global electronics demand suggest continued buoyancy and the upswing being sustained," it added.

Trade war fears may not be too far behind although they eased up last week.

"While there is no actual trade war as yet, the rhetoric is waxing and waning, and the markets are following in step. The end outcome will depend on what each side (US and China) really wants," said RHB Research in a recent strategy report.

"If it is just about deficits and/or opening up market access, the end outcome should be achievable.

"However, if the battle is actually about who gets to dominate the technology, this could be a long drawn-out and potentially difficult battle," it added.

Meanwhile, Singapore has drawn an overweight call from Daiwa Research, premised on earnings growth that is outperforming peers, with stronger revisions led by financials and consumer discretionary sectors.

Sweeter still, according to the house, valuations are also cheap vis-a-vis regional peers.

"A positive trade cycle is supportive of Singapore export earnings and the domestic economy is recovering, led by reflation and inflation cyclical sectors such as real estate and financials," it continued.

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