CEOs’ 2019 outlook in spotlight

Supportive developments on the US-China trade and US Fed policy fronts gave markets some cheer last week, but a recovery is still a work in progress.

This week, dimmer corporate earnings growth may add a dash of unwanted spice to an already heady cocktail.

Q4 earnings season takes place in the US, starting with major banks this week. In light of corporates like tech stalwart Apple and retail giant Macy's lowering guidance for the quarter, analysts say banking stocks may also be put to the test.

What is also vital to watch during the earnings season is chief executives' outlook for 2019, which will drive markets.

Mr Olivier d'Assier, head of Asia-Pacific research at Axioma, said rising uncertainty has lowered the confidence in earnings forecasts, while the surge in volatility has made being wrong that much more costly.

As such, investors will pay very close attention to the CEO guidance, and "any signs that CEOs are lowering their guidance for 2019 will send investors running for safety".

In Singapore, analysts are expecting the market's upward momentum to be dulled by less rosy economic and corporate earnings growth prospects.

But the good thing is, longer-term investors can still find value given local stocks' cheap valuations and attractive dividend yields, the analysts say.

Ms Kum Soek Ching, head of South-east Asia research at Credit Suisse's private banking arm, said the below-historical average market price-to-earnings of 11.4 times (based on 2019 forecast earnings) and dividend yield of 4.4 per cent make for an attractive risk-reward proposition for longer-term investors.

She recommends investors in Singapore maintain a portfolio of "quality, high-yield stocks", such as banks and Singapore real estate investment trusts, and "stocks with low embedded expectations", such as selected developers, to ride out any volatility this year.

After a broad-based slowdown in loan growth in Q3, United Overseas Bank and OCBC Bank have guided for mid-to-high single-digit growth.

DBS Bank has guided for mid-single-digit growth this year as demand for mortgages and trade finance softens.

But Ms Kum believes earnings expectations for banks have not fully factored in the interest rate environment. There is still room for margins to expand, she thinks, as US rates rise (Credit Suisse expects two rate hikes this year) and loan repricing continues with a lag.

On the data front, the focus for Singapore will be the December non-oil domestic exports (Nodx) data on Thursday.

UOB's economics research team expects another month of decline, by 1.9 per cent year-on-year, compared with November's decline of 2.6 per cent year-on-year. Other data releases to watch include China's trade data, out today.

With the official and private Caixin manufacturing Purchasing Managers' Index having fallen into contractionary territory, consensus is for slower growth in exports and imports in December.

The US will release December retail sales and industrial production data tomorrow.

Citi economists are expecting slower industrial production growth. Signs of moderation could deal a blow to the markets alongside potentially poor earnings showings.

Come tomorrow, the British House of Commons will also vote on Prime Minister Theresa May's European Union-endorsed Brexit deal. Her withdrawal deal is widely expected to be voted down.

Finally, the partial US government shutdown is going into its fourth week and will likely continue as no Democrat compromise can be found for US President Donald Trump's wall funding demands.

For full listings of SGX prices, go to http://btd.sg/BTmkts