SINGAPORE: Concerns over US tariffs have triggered volatility on Wall Street, but this does not mean that Asia’s stock markets will be in for a similarly rough ride, analysts said.
While Asian stocks typically track market movements in the United States, their declines “may be more contained”, given that markets in this part of the world have not rallied as much as the US and have a smaller presence of high-growth stocks, said IG market strategist Yeap Jun Rong.
Wall Street started the week with a rout that wiped out US$4 trillion in market value from the S&P 500. The Nasdaq Composite saw its steepest one-day decline since 2022, hit hard by technology-related stocks struggling with high valuations.
Investor anxiety has been mounting over US President Donald Trump’s tariff policies, which intensified over the weekend after Trump warned of “a period of transition” for the US economy and refused to rule out a downturn.
“What started with a decline in expensive tech stocks … has given way to a broad-based equity sell-off as the looming threat of extended trade wars and softer economic data stoked fears of recession,” said Mr Tim Murray, a capital markets specialist at T Rowe Price.
US markets saw another session of losses on Tuesday (Mar 11) amid more trade uncertainties, as the president halted a plan to double US tariffs on Canadian steel and metal imports to 50 per cent just hours after first threatening them.
However, a 25 per cent tariff on all US steel and aluminum imports will still take effect on Wednesday.
A mixed outlook is forming over US stocks.
Mr Zane Aw, research analyst at Phillip Securities Research, said the latest sell-off could potentially be the “end of the bull run” on Wall Street given factors such as expensive valuations and recent sluggish economic data.
In addition, the expectation that Trump may be sensitive to declines in the stock market, known as the “Trump put”, is “so far nowhere to be seen”, he added.
Noting a sense of “scepticism” towards US stocks in the near term, Mr Murray said “there may be more attractive opportunities elsewhere, particularly in regions offering more attractive valuations combined with an improving macro outlook”.
On the other hand, VP Bank continues to be overweight on US stocks even as it sees unpredictable trade policies stoking further volatility ahead.
The “back and forth over tariffs is already having an initial negative economic impact”, but this is not yet reflected in corporate profits, which are expected to grow 13 per cent this year, said the bank’s chief investment officer Felix Brill.
Asian stock markets were not spared from a sell-off but seem to have steadied by Wednesday with a mixed picture of gains and losses.
As tariffs will inevitably be bad news for the region’s export-oriented economies, analysts said cautious sentiment will likely persist in Asian markets until a clearer picture emerges of the extent and severity of tariffs – both by the US and other countries in retaliation – that will be implemented.
“Trade uncertainty is the main driver of market concerns but once we get more clarity, consumers and businesses may adjust, and the impact could be less severe than feared,” said Mr Yeap.
Even then, analysts like Mr Aw reckoned that Asian stocks are still “likely to fare better than their US counterpart”.
Citing Chinese and Hong Kong stocks as examples, he noted that Chinese policymakers have pledged robust fiscal stimulus and a commitment to boost domestic consumption at the recent Two Sessions meeting.
The world’s second-biggest economy also set a growth target of 5 per cent for a third consecutive time, among others.
“These will aid to counter a potential drop off in tariff-sensitive exports from the ongoing trade war,” Mr Aw said.
In particular, Chinese tech stocks may present an “attractive risk-reward proposition and buy-on-weakness opportunity” on the back of China’s advancements in the field of artificial intelligence, upward earnings revisions and relatively inexpensive valuations, said Mr Yeap.
For Singapore, Mr Aw noted that opportunities lie in certain sectors that are “better sheltered from a trade war”, such as construction, utilities and telecommunications.
But the trio of local banks - DBS, OCBC and UOB - which have been investors’ favourites, may no longer be as attractive given the high valuations that may limit upside potential.
“Also, as the banks are cyclical stocks that are highly correlated with the overall economic outlook, a deterioration in US economic conditions resulting in more than expected number of rate cuts would affect their share price performance from margin compression,” the analyst added.
Mr Yeap is more optimistic, noting that if global trade tensions were to escalate, the banks may continue to benefit from wealth inflows, given the country’s status as a safe haven.
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While Asian stocks typically track market movements in the United States, their declines “may be more contained”, given that markets in this part of the world have not rallied as much as the US and have a smaller presence of high-growth stocks, said IG market strategist Yeap Jun Rong.
Wall Street started the week with a rout that wiped out US$4 trillion in market value from the S&P 500. The Nasdaq Composite saw its steepest one-day decline since 2022, hit hard by technology-related stocks struggling with high valuations.
Investor anxiety has been mounting over US President Donald Trump’s tariff policies, which intensified over the weekend after Trump warned of “a period of transition” for the US economy and refused to rule out a downturn.
“What started with a decline in expensive tech stocks … has given way to a broad-based equity sell-off as the looming threat of extended trade wars and softer economic data stoked fears of recession,” said Mr Tim Murray, a capital markets specialist at T Rowe Price.
US markets saw another session of losses on Tuesday (Mar 11) amid more trade uncertainties, as the president halted a plan to double US tariffs on Canadian steel and metal imports to 50 per cent just hours after first threatening them.
However, a 25 per cent tariff on all US steel and aluminum imports will still take effect on Wednesday.
Related:
A mixed outlook is forming over US stocks.
Mr Zane Aw, research analyst at Phillip Securities Research, said the latest sell-off could potentially be the “end of the bull run” on Wall Street given factors such as expensive valuations and recent sluggish economic data.
In addition, the expectation that Trump may be sensitive to declines in the stock market, known as the “Trump put”, is “so far nowhere to be seen”, he added.
Noting a sense of “scepticism” towards US stocks in the near term, Mr Murray said “there may be more attractive opportunities elsewhere, particularly in regions offering more attractive valuations combined with an improving macro outlook”.
On the other hand, VP Bank continues to be overweight on US stocks even as it sees unpredictable trade policies stoking further volatility ahead.
The “back and forth over tariffs is already having an initial negative economic impact”, but this is not yet reflected in corporate profits, which are expected to grow 13 per cent this year, said the bank’s chief investment officer Felix Brill.
ASIA STOCKS TO "FARE BETTER"
Asian stock markets were not spared from a sell-off but seem to have steadied by Wednesday with a mixed picture of gains and losses.
As tariffs will inevitably be bad news for the region’s export-oriented economies, analysts said cautious sentiment will likely persist in Asian markets until a clearer picture emerges of the extent and severity of tariffs – both by the US and other countries in retaliation – that will be implemented.
“Trade uncertainty is the main driver of market concerns but once we get more clarity, consumers and businesses may adjust, and the impact could be less severe than feared,” said Mr Yeap.
Even then, analysts like Mr Aw reckoned that Asian stocks are still “likely to fare better than their US counterpart”.
Citing Chinese and Hong Kong stocks as examples, he noted that Chinese policymakers have pledged robust fiscal stimulus and a commitment to boost domestic consumption at the recent Two Sessions meeting.
The world’s second-biggest economy also set a growth target of 5 per cent for a third consecutive time, among others.
“These will aid to counter a potential drop off in tariff-sensitive exports from the ongoing trade war,” Mr Aw said.
In particular, Chinese tech stocks may present an “attractive risk-reward proposition and buy-on-weakness opportunity” on the back of China’s advancements in the field of artificial intelligence, upward earnings revisions and relatively inexpensive valuations, said Mr Yeap.
Related:
For Singapore, Mr Aw noted that opportunities lie in certain sectors that are “better sheltered from a trade war”, such as construction, utilities and telecommunications.
But the trio of local banks - DBS, OCBC and UOB - which have been investors’ favourites, may no longer be as attractive given the high valuations that may limit upside potential.
“Also, as the banks are cyclical stocks that are highly correlated with the overall economic outlook, a deterioration in US economic conditions resulting in more than expected number of rate cuts would affect their share price performance from margin compression,” the analyst added.
Mr Yeap is more optimistic, noting that if global trade tensions were to escalate, the banks may continue to benefit from wealth inflows, given the country’s status as a safe haven.
Continue reading...