DBS CEO says short-term impact of trade tensions 'might be exaggerated'

  • The ongoing trade tensions between the United States and China is unlikely to have any major impact in the short term because it takes time for companies to adjust their supply chains, DBS Group CEO Piyush Gupta told CNBC.
  • Companies cannot replicate overnight the factories in China that are part of their existing supply chains with new set-ups in other areas of the world, according to the DBS chief.
  • As a result, supply chains will not be "in a hurry" to shift away from China and production activity will continue to be "fairly steady," he said.

The ongoing trade war between the United States and China is unlikely to have any major impact in the short term because it takes time for companies to adjust their supply chains, according to the CEO of DBS Group.

The short-term impact of the trade tensions "might be exaggerated," Piyush Gupta told CNBC's "Capital Connection" on Monday.

"The assumption that trade is going to fall off a cliff is, I think, unlikely," he said. "Supply chains are not that easy to move. Our own sense is that the technology supply chain will take three, four years to move."

Companies cannot replicate overnight the factories in China that are part of their existing supply chains with new set-ups in other areas of the world, according to the DBS chief.

"You've got to get land, hire workers, build plants. We don't think the actual impact of trade will start getting visible in the 2019 time frame," he said.

As a result, supply chains will not be "in a hurry" to shift away from China and production activity will continue to be "fairly steady," Gupta added.

There are concerns that factory activity in China could slow and the world's second-largest economy might lose its growth momentum due to the trade war.

So far, the U.S. has levied tariffs on an extensive list of Chinese products. Beijing, for its part, responded with duties on products from the U.S., even as President Xi Jinping emphasizes his rhetoric denouncing protectionism.

DBS results

Gupta's remarks followed DBS' third-quarter earnings earlier in the day. Southeast Asia's largest lender reported a net profit of 1.41 billion Singapore dollars ($1 billion) for the three months ended September, propelled by higher net interest margin and loan growth.

DBS shares traded down 2.43 percent in Singapore on Monday afternoon, falling behind the broader Straits Times index that was down 1.72 percent.

Net interest margin, a measure of a firm's profitability, rose 13 basis points to 1.86 percent, which was in line with higher interest rates in Singapore and Hong Kong.

Loans expanded 8 percent to S$340 billion ($247 billion), led by consumer and non-trade corporate loans — trade loans fell as maturing exposures were not replaced due to unattractive pricing, DBS said.

For 2019, the lender predicted "mid-single-digit" loan growth and "continued (net interest margin) progression."

Gupta said one of the factors that will drive net interest margins next year will be the number of rate hikes from the U.S. Federal Reserve.

"My own view is that the Fed will continue to hike for the foreseeable future. I think the December hike is a done deal," he said, adding, "I think you'll see a couple of hikes next year."

He pointed to Friday's stronger-than-expected nonfarm payroll number as well as a pickup in consumer prices and wages that would influence the Fed's decision to raise interest rates in 2019.

Overall, corporate decision-makers remain cautious as the trade tensions between the U.S. and China show little sign of easing in the near term.

"I think everybody is a little bit careful. People are waiting and watching, so I don't see a lot of new capital investment going in, in the short term, till people have greater clarity on how this thing is going to wind up," Gupta said.