Markets perk up on US-China trade talks

Local stocks with Chinese exposure make gains but analysts warn of continued risks ahead

A thaw in trade tensions between the US and China lent hope to local equities yesterday, although some of the rosiness evaporated over the course of the day.

The benchmark Straits Times Index (STI) slid from a morning peak to finish up 18.96 points, or 0.54 per cent, at 3,548.23. But losers beat gainers 201 to 193 on the full bourse, as 1.28 billion shares changed hands for $1.04 billion.

Winners on the index included Venture Corporation, which gained $0.56, or 2.64 per cent, to $21.76.

Singapore Airlines, which is making ready to merge its flagship brand with regional carrier SilkAir, ended up $0.12, or 1.04 per cent, to $11.68.

Some cheer came from the trade negotiations between the world's two largest economies over the weekend. US Treasury Secretary Steven Mnuchin told media on Sunday that "we're putting the trade war on hold", in a reference to the tit-for-tat tariffs that Washington and Beijing announced in March.

Wilmar International, an index agribusiness that had been fretting over the impact of soya bean tariffs on its key Chinese operations, added $0.02, or 0.62 per cent, to $3.25.

Technology stock Hi-P International, which has six manufacturing facilities in the Middle Kingdom, put on $0.05, or 3.68 per cent, to $1.41.

With the problem of the scuppered Iran disarmament deal unresolved, oil's firm footing above US$70 prices continued to give a lift to energy stocks.

Sembcorp Marine, fresh from clinching a Shell floating production unit contract, rose $0.05, or 2.25 per cent, to $2.27. KrisEnergy was also in the top 20 active counters, up 0.1 Singapore cent, or 0.98 per cent, to $0.103.

In the industrial real estate investment trust (Reit) arena, last Friday's landmark proposal to merge ESR-Reit and Viva Industrial Trust (VIT) pushed ESR-Reit down $0.01, or 1.91 per cent, to $0.515. VIT ended $0.01, or 1.12 per cent, higher at $0.90. The move would see the ESR-Reit manager run the enlarged trust, with VIT to be delisted.

"We deem the terms are 'principal-positive' for VIT unit holders," said OCBC analyst Deborah Ong. "Overall, our estimate implies that one VIT unit can be traded for an aggregate value of at least $0.942."

She added: "Given the favourable terms, we see it in VIT unit holders' benefit to accept the offer."

Speaking of offers, crane supplier Tat Hong Holdings lost half a Singapore cent, or 0.91 per cent, to $0.545 after chief executive Roland Ng's joint buyout offer turned unconditional. The exit offer of $0.55 a share will close on June 4, with the company headed for a delisting.

Looking ahead, UOB research head Suan Teck Kin and senior economist Alvin Liew said that "markets will be relieved (by) the positive conclusion" of the US-China talks. "The de-escalation of trade frictions will remove one key near-term risk undermining the current synchronised growth path of the global economy and should be a stabilising factor for the current global trade arrangement."

But they warned that "markets are also wary that the latest trade developments could also be due to US posturing for geopolitical reasons" - the need for Chinese goodwill over an upcoming dialogue in Singapore with North Korean leader Kim Jong Un.

IG Asia market strategist Pan Jingyi said that "Asian markets are expected to be supported into the week's open with the reduction of risk" from the trade talks, adding that a 3,520-point support level is "in question" with the STI.