STI down on tit-for-tat trade threats

Singapore shares, along with its regional peers, reeled on escalating fears of a trade war between the world's two largest economies.

Analysts cautioned that it might be too early and risky to start buying stocks, given the daily tit-for-tat rhetoric between China and the US.

Yesterday, China responded to US President Donald Trump's plans to slap tariffs on 1,300-odd Chinese products, worth some US$50 billion (S$65 billion) annually.

In retaliation, China said it would impose additional tariffs of 25 per cent on 106 items of US imports, including soya beans, vehicles, chemicals, some types of aircraft and corn products, among other agricultural goods - also worth some US$50 billion annually.

The trade feud between the two world's largest economies sent stock markets tumbling.

MSCI's broadest index of Asia-Pacific shares outside Japan fell as much as 1.3 per cent to its lowest in over one month.

The Straits Times Index (STI) tumbled 2.12 per cent, or 72.45 points, to close at 3,339.70.

There were 112 gainers to 398 losers.

Bellwether stocks like UOB, DBS and OCBC banks dampened the STI. UOB lost 2.5 per cent, or 68 Singapore cents, to end at S$26.28; DBS fell 2.6 per cent, or 71 cents, hitting a near two-month low to end at S$26.47, while OCBC lost 3.2 per cent, or 41 cents, to close at S$12.29, its lowest in over one-month.

Original equipment manufacturer Venture Corp was also among losers. It lost 4.6 per cent, or $1.27, to settle at $26.60 a share.

BlackRock Inc's deemed interest in Venture was pared to 4.93 per cent, from 5.27 per cent, after PNC Financial Services Group Inc, rid its stake in the Singapore company.

Jane Fu, sales trader at CMC Markets in Singapore, said 3,400 used to be a good technical support for the STI, but now, it is difficult to predict where the next support is.

"Given that China did not fix an effective date for the tariffs indicates that there is still hope for further negotiations,'' Ms Fu said.

"The STI has shown pretty good resilience recently, though it tumbled on Wednesday. I believe the STI is still resilient,'' she added.

All will depend on how the US markets and President Trump will react to China's latest move.

But based on the Dow Jones futures and the S&P 500 futures, indications are they are headed South.

Mr Tommy Xie, economist at OCBC Bank, believes that the US and China would negotiate for the next one to two months.

"If that fails, we may say that the trade war has started. But I doubt that will happen, as it is a lose-lose situation and is unlikely to help the US Republican Party in the upcoming mid-term elections,' Mr Xie said.

Despite this, the news flow surrounding global trade tariffs has kept the gold market on its toes.

Mr Carsten Menke, commodities research analyst at Julius Baer, believes that there is a 20 per cent chance that the trade quarrels turn uglier and escalate into a trade war.

"While the trade war risk is not negligible, it is not meaningful enough to foresee a flight to safety, project a surge in investment demand and justify an increase of our gold price targets.

"That said, in case of a trade war, gold would benefit as a safe haven and prices would rise. Gold would continue to outperform silver, which does not exhibit the same safe-haven characteristics due to its greater dependence on industrial demand,'' he said, adding that the US rate cycle and US dollar remain in the driving seat for gold and silver.

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