With the 90-day truce in the US-China trade war coming to a halfway mark, attention is now on the outcome of those talks. While the news so far appears to be indicating that the talks will end in a positive note, it is hardly a foregone conclusion.
Things could still change in a swift if either party changes its mind. So, what happens if the US-China trade talks fall apart?
Investors Takeaway: 3 Things To Do If US-China Trade Talks Go Wrong By DBS
- Stay Invested In REITs
S-REITs managed to put in the second-best performance in 2H18 after healthcare. According to DBS, S-REITs should continue to garner investors’ interest as bond yields are still pressured by the Fed turning more dovish.
The Federal Reserve’s previous guidance in December last year pointed to two interest rate hikes in 2019 which would push the Fed fund rates to three percent. However, the Fed’s chairman Jerome Powell recently hinted to the market that the Fed will be patient in further interest rate hikes, depending how the US economy evolves.
So far, the dovish stance has already taken a toll on long bond yields to lift S-REIT yield spread to 4.2 percent, which is above the 10-year average of 3.8 percent. Beyond the US-China trade war, DBS thinks that S-REITs will be buoyed by the macro fundamentals.
However, given the uncertainty in macro growth environment, DBS recommends the more resilient retail and industrial (warehouse and business parks) REITs for their domestic focus and relatively stickier demand. Among the S-REITs, DBS’ top picks are CapitaMall Trust, Mapletree Commercial Trust, Mapletree Logistics Trust, Frasers Logistics & Industrial Trust and Mapletree North Asia Commercial Trust.
CapitaMall Trust: BUY, TP $2.44; Mapletree Commercial Trust: BUY, TP $1.80; lMapletree Logistics Trust: BUY, TP $1.50; Frasers Logistics And Industrial Trust: BUY, TP $1.20; Mapletree North Asia Commercial Trust: BUY, TP $1.45
- Take Shelter In Utilities
Should the US-China trade talks go sour, investors should expect negative sentiments to spread in the market. Coupled with the end of the early contraction phase in the economic cycle and transition into the mid-contraction phase, DBS expects utility stocks to outperform other plays. Among the utility stocks, DBS recommends SembCorp Industries and Netlink NBN Trust.
SembCorp Industries: BUY, TP $3.70; Netlink NBN Trust: BUY, TP $0.87
- Sticking With Defensive Plays
While there is some light at the end of the tunnel for US-China trade relations, DBS continues to recommend a more guarded approach towards stock picking. Moreover, with the upcoming quarterly (and full year) results season, earnings recession trend could continue for at least two more quarters. Thus, DBS thinks that investors should stick with defensive plays. In particular, DBS prefers stocks with earnings visibility and yield plays with growth.
Yield With Growth Picks
ComfortDelgro: BUY, TP $2.56; UOB: BUY, TP $29.50; CapitaMall Trust: BUY, TP $2.44; Mapletree Logistics Trust: BUY, TP $1.50; Netlink NBN Trust: BUY, TP $0.87
ST Engineering: BUY, TP $4.15; Yangzijiang Shipbuilding: BUY, TP $1.82