Eyes on Asian data amid US-China trade war

Regional markets head into the end of this month with a very different outlook from the one when the month started, with observers looking to this week's data releases in Asia for clues on growth prospects ahead.

Equities have rallied since the start of the year following last year's fourth quarter sell-off with investors pricing in an amicable resolution to the US-China trade deal for the middle of this year.

But all that changed when US President Donald Trump tweeted on May 5 about raising the tariff rate to 25 per cent for US$200 billion (S$275 billion) of Chinese imports, saying the Chinese were reneging on certain aspects of the trade discussions.

Since then, US and China have traded blows on implementing tariffs on imports and with the US' blacklisting of Chinese tech giant Huawei Technologies last week, the trade war has morphed into one centred on tech.

Singapore's Straits Times Index (STI) has dropped 223.44 points, or 6.5 per cent, and turned in three straight weeks of losses since Mr Trump's tweet.

Perhaps, the adage of "sell in May and go away" holds true this year, an investing strategy that sees traders divest equity investments in May before entering the market at a later date.

"May's stock sell-off and uncertainty surrounding the next move in the US-China trade situation have increased market volatility.

"With the holiday season coming up, people will take a break and stay away from the market," a trader told The Business Times.

Another question on investors' minds is how much further the Singapore market will slide before trending upward.

Acknowledging that the local market "is unlikely to be spared from volatility and portends downside risks in the coming weeks", DBS Group Research equity strategist Joanne Goh thinks "the downside is less than 10 per cent" with a number of factors supporting the market.

"Following the recent correction, Singapore is now the cheapest market within Asia, trading at less than -1 standard deviation away from average and has the highest dividend yield."

With most companies having already reported earnings for the first three months of the year and major Q1 economic data already out, it will be a relatively quiet data week for Singapore with April bank lending and money supply data out on May 31.

In China, regional investors will be looking to May's official manufacturing and non-manufacturing Purchasing Managers' Index (PMI) surveys. China will also release industrial profits for April today.

FXTM market analyst Han Tan said Asian assets may be influenced by the China data releases.

"Further signs of a moderation in the world's second largest economy may deal another blow to risk sentiment, amid a backdrop of already heightened US-China tensions that threaten to further derail the global growth trajectory."

IG market strategist Pan Jingyi noted that if the street's expectations of a contraction in manufacturing is met (a reading of 49.9), "it will end the two-month streak where PMI had returned to expansion".

The end of the month also brings the usual deluge of economic data releases in Japan. This includes April's unemployment rate and May data releases on inflation rate, retail sales and industrial production.

Other key Asian data that will be out include gross domestic product for the first quarter in India and Thailand's April trade figures. Among central banks in the Asia-Pacific, the Bank of Korea (BOK) has a monetary policy decision on May 31.

According to a Bloomberg poll, four out of the five analysts surveyed expect BOK to keep rates unchanged at 1.75 per cent while one expects a 25-basis point rate cut.

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