Is the worst of the trade conflict finally behind us?
On Monday, stock markets in Asia reacted positively to the announcement that the United States and China have agreed not to impose further tariffs on each other for 90 days.
China is hoping that the US will remove tariffs imposed in July, while the White House said that talks will take place to resolve specific US complaints such as “forced technology transfer” within the next 90 days. If the trade conflict does resolve, it will certainly be good news for investors around the world. Lower trade barriers mean more efficient use of resources and larger markets for companies around the world in a time where trade has become a major part of the world economy.
While the lifting of trade tariffs do not directly impact Singapore, there are significant positives spillover effects. Here’s a quick look at some companies that could benefit the most from a resolution of the trade war.
Manufacturing companies in Singapore with supply chains linked to China were driven sharply down when the first trade tariff was imposed earlier this year. Stocks like Micro-Mechanics (Holdings) Ltd (SGX: 5DD), Venture Corporation Ltd (SGX: V03) and Valuetronics Holdings Limited (SGX: BN2) are still well below their 52-week highs.
If a trade deal does materialise, these stocks could see an uplift and increase their competitiveness to their American customers.
Banks in Singapore earn a portion of their revenue from treasury income and depend on the confidence of investors. In addition, around 10% to 14% of loan books for Singapore banks are in trade loans. A fall-off in trade momentum will impact the three major banks’ loan growth momentum. According to a Credit Suisse analyst, among local banks, DBS Group Holdings Ltd (SGX: D05) and Oversea-Chinese Banking Corp Limited (SGX: O39) also have the biggest exposure to China and Hong Kong.
Moreover, the financial sector is often one of the first and hardest to be hit during an economic slowdown. A trade war can have a very real and damaging impact on global economic growth. Therefore, a resolution of the trade conflict should be very good news for the three major banks in Singapore, including United Overseas Bank Ltd (SGX: U11).
China companies listed in Singapore
Most obviously, China companies that are listed in Singapore will have a big lift if the trade conflict is resolved.
Among them are China Sunsine Chemical Holdings Ltd (SGX: CH8), which sells rubber accelerators to tire makers, and China Aviation Oil (Singapore) Corp Ltd (SGX: G92), which supplies jet fuel to airline companies around the world. There are many other smaller China companies listed in Singapore that could also benefit from the resolution of the trade conflict.
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Editor's note: The article has been updated to say that stock markets in Asia reacted positively on Monday and not yesterday, as originally stated.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Jeremy Chia owns shares in DBS Group Holdings Ltd. The Motley Fool Singapore has recommended shares of Micro-Mechanics, DBS Group Holdings Ltd, Oversea-Chinese Banking Corp Limited and United Overseas Bank Ltd.