Tentative trade truce lifts sentiment

Reports the US and China have a tentative truce ahead of this weekend's meeting at the G-20 summit saw the local and regional equities market stage a rebound.

Renewed optimism saw the Straits Times Index (STI) finish at 3,328.60 yesterday, gaining 27.35 points or 0.8 per cent.

Key regional markets Australia, China, Hong Kong, Japan and South Korea all closed comfortably higher. Bucking the trend was Malaysia.

Investors had much trade-related developments to digest between the end of Asian trading on Wednesday and the start of yesterday.

First was US Treasury Secretary Steven Mnuchin suggesting a trade deal was 90 per cent done. Then came US President Donald Trump's admission that reaching a deal was a possibility though he was prepared to extend tariffs on remaining Chinese imports if both parties were not able to see eye-to-eye.

News that the US and China have agreed to a tentative truce, with press releases to be out ahead of tomorrow's meeting in Osaka, gave sentiment a lift.

Markets tend to cling to positive news but market watchers are saying it is best not to be over-optimistic.

Vanguard Markets managing partner Stephen Innes noted that the 10 per cent needed to push the deal through "has always been the gap too far to bridge - especially that trust gap where the US wants to keep existing tariffs in place to ensure China compliance".

Deutsche Bank Wealth Management chief investment officer of emerging markets Tuan Huynh thinks "it would be too optimistic at this stage" for Washington and Beijing to arrive at a solution this weekend.

FXTM research analyst Lukman Otunuga said: "Given the unpredictability of President Donald Trump, it would be unwise to be unprepared for a possible scenario where talks descend into disagreements on trade. Such an outcome will most likely rattle financial markets as concerns over slowing global growth and sizzling trade tensions fuel risk aversion."

The Singapore market had another session of above average activity. Trading volume clocked in at 1.37 billion securities, 15 per cent over the daily average in the first five months of 2019. Total turnover came to $1.24 billion, 19 per cent over the January-to-May daily average.

Across the market, advancers trumped decliners 239 to 151. The STI had seven of its 30 components ending in the red.

Financials were among the main gainers. DBS Group Holdings added 35 cents or 1.4 per cent to $25.83, OCBC Bank was 17 cents or 1.5 per cent higher at $11.42 while United Overseas Bank finished at $26.13, up 46 cents or 1.8 per cent.

The risk-friendly mood of the day and news that Nasdaq-listed chipmaker Micron Technology posted stronger- than-expected earnings guidance for Q3 saw tech stocks outperform the benchmark index.

Venture Corporation, which faced sell-offs in days prior, rebounded to finish 29 cents or 1.8 per cent higher at $16.31. Hi-P International gained seven cents or 5.2 per cent to $1.41 and AEM Holdings finished four cents or 4 per cent up at $1.04.

The manufacturing and semiconductor sectors have been facing headwinds from slowdowns and the US-China trade spat.

Increased expectations of a friendly interest rate environment have seen real estate investment trusts (Reits) rally of late, with some traders calling them "too expensive".

That said, DBS Equity Research analysts believe unit prices still have room to climb though "the next leg up should be more modest and gradual".

Singapore-listed Reits stay poised to benefit from the upturn in the property sector and accommodative stance by the US Federal Reserve, which has seen other central banks follow suit.

"Furthermore, S-Reits still offer the highest absolute yields globally, which should lend support to valuations," analysts said.

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