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A Trade War Between The US and China Is Flaring Up: Is This An Investing Opportunity?

Ong Junyu

The Chinese characters for crisis are “危机”. The character “危” stands for danger, whereas the character “机” stands for opportunity. Unlike the US equity market that has remained relatively unscathed despite escalating trade tensions between itself and China, emerging markets have not been so lucky.

The Shanghai Composite Index, a major stock market benchmark in China, fell to three-year lows of below 2,800 earlier this month, drawing comparisons to the Chinese stock market turmoil last seen in 2015. Vietnam, China’s largest trading partner in 2017, also saw its stock index fall to a seven-month low a few weeks ago.

At home, Singapore’s Straits Times Index (SGX: ^STI) sunk to a 14-month low earlier this month. With the US and China crossing swords on trade issues, are there any investing opportunities at all?

There are broad trends to keep in mind.

Right now, the Straits Times Index’s PE ratio is around 10. For context, the Straits Times Index’s long-term historical average PE ratio is 16.9. So, it’s clear that stocks in Singapore – in general – are valued much lower in relation to history. My colleague Sudhan P also pointed out earlier this week that the number of cheap stocks in Singapore – as measured by their net-net value – has been increasing of late.

Meanwhile, US interest rates should continue to rise, leading interest rates in Singapore higher. Financial institutions are key beneficiaries when interest rates climb higher. I note that bank stocks in Singapore’s market have also fallen hard in recent times, by as much as 20% since early May.

Real estate investment trusts, a favourite amongst local investors, have also been hit by the recent stock market turmoil. Careful evaluation of REITs with viable properties may turn up buying opportunities.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.