SINGAPORE (Nov 26): UOB KayHian is maintaining its “overweight” on the Singapore banking sector on expectations the United States will pursue a win-win trade deal with China.

With an eye on the Presidential Election in 2020, UOB believes President Trump’s agenda could switch towards shoring up economic growth.

The US and China are gonging ahead with the dinner meeting scheduled for Dec 1.

“We are cautiously optimistic that progress would be made at their meeting post the G20 summit in Argentina,” says analyst Jonathan Koh.

The US and China have renewed discussions to resolve their trade conflicts after a telephone conversation between President Trump and President Xi on Nov 1.

Treasury Secretary Steven Mnuchin and Vice Premier Liu He are believed to be in intense preparatory talks ahead of the summit.

“President Trump believes China would like to have a deal and has toned down his rhetoric in recent days,” says Koh.

Each President is expected to bring six advisors to the Dec 1 dinner meeting.

Besides Mnuchin, Commerce Secretary Wilbur Ross and Director of National Economic Council Larry Kudlow will also be attending, according to Koh.

Mnuchin and Wilbur Ross had previously cut trade deals with China which were subsequently rejected by President Trump.

However, author of Death By China and Director of Trade and Industrial Policy Peter Navarro is said to have been excluded from the talks.

That leaves US Trade Representative Robert Lighthizer to lead the charge for trade hawks.

Koh says the post-G20 summit meeting could lead to the suspension of the step-up in tariff from 10% to 25% which is to be implemented in Jan 19.

The two countries could also finalise a broad framework for the eventual deal, followed by detailed negotiations to narrow the differences.

“The differing views of the US and China on issues, such as market access and intellectual property rights, remains significant. Nevertheless, we are cautiously optimistic that progress would be made at the meeting post G20 summit,” says Koh.

Share prices for DBS, OCBC and UOB have corrected 25.2%, 22% and 20.3% respectively from their peaks in end-April.

UOB is maintaining its “buy recommendations for DBS and OCBC with target prices of $29.50 and $14.05 respectively.

Koh says DBS is a beneficiary of rising interest rates in Singapore and Hong Kong and provides an attractive dividend yield of 5.2% based on DPS of $1.20 for 2018F.

Meanwhile, OCBC is expected to increase its dividend payout ratio towards mid-40%, bringing 2019F DPS to $0.48, which provides a dividend yield of 4.4%.

Shares in DBS and OCBC are up 1.9% and 1.01% to $23.51 and $11.00 or 10x FY19F earnings respectively.