In this article, we highlight two trade diversion plays that DBS recommends investors in 2019.
Looming Danger Of US-China Trade War
The ongoing trade disputes between the US and China will affect export dependent economies such as Singapore. Singapore’s manufacturing base is largely focused on high value-added intermediate products, and a large proportion is shipped to China for subsequent processing. However, as the trade war is largely bilateral in nature, there could be some degree of trade diversion, which could benefit Southeast Asia’s economies.
Singapore is in a unique position given its regional hub status, a comprehensive Free Trade Agreement network and higher level of innovation and business sophistication. Being a regional shipping and financial hub, Singapore could also see positive spin-offs in terms of demand for its re-exports, shipping, logistics and financial intermediation services. Singapore could see a rise in importance as a logistics hub for the ASEAN region.
Investors Takeaway: Trade Diversion Plays To Shield Against Trade War Impact By DBS
Venture Corporation (Venture) has benefited with order outflow from China as a result of the trade war, as bulk of its manufacturing facilities are based in Malaysia. In addition, Venture could further benefit from diversification out of China with its global group of companies.
In recent years, it has also been beefing up its facility outside China, e.g. the new facility in Batu Kawan, Penang. It has also acquired a freehold site in Milpitas (California) within the Silicon Valley. This puts in a direct proximity with some of the best tech firms in the US, potentially mitigating the impact of the trade war while still allowing it to retain core customers.
BUY, TP $21.30; Current share price $14.90
Another potential beneficiary of trade diversion is the group of logistics REITs that have assets in ASEAN. According to DBS, Ascendas REIT, Mapletree Industrial Trust, Mapletree Logistics Trust and AIMS AMP Capital Industrial REIT are part of this group. In addition, as Singapore’s warehouse subsector approaches a cyclical bottom and new supply starts tapering off meaningfully in 2019, there could be room for positive rent reversion for logistics REITs in 2019.