US technology shares fell 2% on average overnight, giving up earlier gains as investors re-assess the risks of Italy-EU budget debate, trade standoff and rising interest rate that would potentially cap global growth in the quarters to come.

Investors are struggling to strike a right balance between aforementioned concerns and another upbeat US earnings season. The midterm elections posted additional political uncertainty that kept investors away from the bar because the outlook of fiscal stimulus largely relies on the election results. 

This morning all eyes will focus on China 3Q GDP readings, which is expected to slow down to 6.6% y-o-y, comparing to 6.7% last quarter. Market participants will put closer scrutiny on impact resulting from trade war that heated up in third quarter. But don’t be surprised to see a ‘last chance’ inventory build-up to boost shipments and trading activities before a 25% export tariffs kick in next year. Economists expect retail sales and fixed-asset investment to maintain steady pace of growth in September. Infrastructure investment is likely to improve as well on the back of local government special bond issuance.

Shanghai composite tumbled nearly 2% yesterday to 2,486 points, the lowest level seen since Nov 2014. The benchmark lost over 30% from Feb this year, making it one of the worst-performing stock market in Asia. The reason behind recent sell-off is no longer linked to fundamental reasons, but more of a liquidity trap. Hundreds of listed companies pledged their shares for loans and they are facing liquidation risk when share price falls. Force liquidation accelerated market sell-off and results in more liquidations. Retail investors feel powerless and have no incentive to step in when market enters into negative feedback loop. For long term investors, however, distortion of valuation due to liquidity crisis could potentially become a good opportunity.

In Singapore, Keppel Corp’s 3Q earnings missed market expectations, with net profit falling 15% from a year ago to S$225.7 million. Its earnings-per-share (EPS) declined 15% to 12.4 cents, below consensus forecast of 17 cents due to lower contribution from investment and property divisions. Spotlight is that its offshore & marine dividend managed to breakeven for the first time in three quarters, registering a net profit of S$2 million backed by surging oil prices.

Keppel Corp

By Margaret Yang in Singapore

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