Therefore, investors have decided to anchor down and pivot towards defensive strategies in specific sectors that some call "safe havens".
Mark Lacey, head of thematic equities at Schroder Investment Management, emphasised in an interview with The Edge Singapore that such sectors provide resilience during potential economic slowdowns, stagflation and market volatility, making them attractive for investors seeking stability.
Energy to push through
Energy utility providers and producers find themselves in a safer spot during times of economic weakness. The recurring revenue model in the utilities sector gives utility companies a constant inflow of revenue, usually on long-term contracts of up to 25 years, which can help them retain their margins. "So there's no real change to earnings, which brings stable earnings and everyone continues to use energy in a recession," Lacey adds.
The energy sector also includes oil and gas exploration and production companies, fuel producers and businesses that provide energy producers with equipment, materials and services.
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A report from AllianceBernstein found that during challenging times in the market, like the bust of the tech bubble in April 2000 and the Global Financial Crisis in 2008, the energy sector generally outperformed during negative-return years of the S&P 500 index.
According to data from Factset, during the first quarter of 2025, the energy and utilities sectors produced returns of 9.9% and 4.9%, respectively, while the S&P500 declined by about 4.6%.
The report states that big oil and gas companies performed the best in the first quarter, gaining an average of 16.5%, led by TotalEnergies, which rose 20.0%. Shell followed, gaining 18.2%, with Chevron in third with a 16.8% quarterly return.
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But in addition to traditional energy, Lacey also shares his optimism about the renewable energy sector as an emerging theme for investors to consider.
"The one sector we are most bullish on, as it is such an unloved sector, is renewable energy, particularly in a slowdown and tariff structure. The reason is that energy security will be important and the cheapest form of energy production is renewable," Lacey adds.
Solar, onshore and offshore wind are the cheapest sources of renewable energy, with solar leading the way. In 2021, solar became the most affordable renewable energy in history after it became cheaper than gas.
Since 2010, photovoltaic system models responsible for generating solar energy have fallen around 80%.
A 2022 study from Oxford University found that switching from fossil fuels to renewable energy could save the world as much as US$12 trillion ($15.8 trillion) by 2050. According to the International Renewable Energy Agency (IRENA), the renewable energy push has amassed an estimate of over US$3 trillion in investment last year.
China, in particular, has led the charge in investment in renewable energy. Nearly 64% of the new renewable electricity capacity in 2024 was in China. They added almost 374 billion watts of renewable power last year, three-quarters of which came from solar energy. That is more than eight times as much as the US did and five times what Europe added last year.
"Never has the electricity market grown at this pace before. With data centre demand, population growth and increased penetration of electricity consumption in emerging markets. We will need to produce about 58,000 terawatt hours by 2040 compared to our current consumption of 28,000 terawatt hours, so we need to double the entire electricity usage in a 15-year period," says Lacey.
Lacey also notes that valuations in the renewable energies sector are extremely depressed now, offering attractive entry points for investors.
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Green energy exchange-traded funds (ETFs) and indexes have been losing money since 2020 when the sector initially boomed. Supply chain issues and low energy prices during the post-pandemic period further trimmed margins across the solar and wind energy industries.
Although Trump's electoral victory has dampened sentiment in the renewable energy sector with his pro-coal stance, Lacey believes there are still positives for the European and Asian renewables scene, especially with the emerging theme of self-reliance. "From a European and an Asia Pacific perspective, the best way to grow your energy independence is through renewables and that will continue," he says.
The renewables sector's de-rating over the last few years should prove "healthy," according to Lacey. Earnings and investments are now higher than they were in 2019 and expectations for the sector are so "washed up" that the de-rating provides a "reset" of this sector, which has steady earnings growth and is receiving growing investment.
Food will always be a necessity
When times are good, food and water are another typically dull sector that is unloved by most. However, boring is sometimes good as these are part of consumer staple goods, essentials to daily lives even during times of inflation and economic downturn.
According to data from Factset, the consumer staples sector grew by about 4.4% in the first quarter of 2025, producing better returns than the S&P 500 in the same period.
Lacey notes that the agents in the basic food industry, which includes the agricultural sector and supermarkets, are "extremely good" at passing on the effects of inflation to consumers, given how essential their products are. This means these players are likely to hold their margins through this period compared to other industries.
New York Stock Exchange-listed Tyson Foods Inc is the world's second-largest processor and marketer of chicken, beef and pork. It is the largest meat company in America. Since the start of the year, shares in Tyson Foods are up 5.4% at US$60.54 as at April 14, a stark contrast to the 8.1% decline in the S&P 500 index in the same period.
Closer to home, Sheng Siong, the household supermarket brand known to many Singaporeans, is up 0.61% year-to-date to $1.65 as at April 14, while the Straits Times Index is down about 5.75%.
On the other hand, discretionary F&B spending in restaurants and cafes will trend downwards, says Lacey, as consumers opt to save money. "When we have less income (during economic downturns), what do we do? We don't go to restaurants as much. We go to supermarkets even more. So you get less takeaway food and fewer restaurants and we go to the supermarket even more to cook more at home," comments Lacey.
Healthcare cures market blues
Healthcare has long been considered one of the most dependable defensive sectors, as healthcare needs are generally non-discretionary.
“People require medical care, pharmaceuticals and related services irrespective of prevailing economic conditions. The fundamental stability arises from the inelastic nature of healthcare needs, providing a buffer against cyclical downturns compared to more economically sensitive areas,” Lacey says.
According to data from FactSet, the healthcare sector had 1Q2025 returns of about 6.3%, once again outperforming the S&P 500 and Nasdaq composite index.
However, Lacey cautions that while these defensive characteristics are broadly applicable, prevailing uncertainties moderate certain healthcare subsectors' traditionally defensive posture.
Historically, the pharmaceuticals, healthcare providers and medical tech sub sectors have remained more resilient during periods of economic downturn.
“Demand for prescription drugs tends to remain stable even during economic downturns as they address necessary health conditions. Regardless of the economic climate, people require medical care for emergencies, chronic conditions and essential treatments. Demand for these services is relatively constant,” Lacey adds.
Raffles Medical Group (RMG) is one of Singapore's largest homegrown healthcare providers. It has had stable and healthy growth in its healthcare and hospital business sectors, including a boost in earnings from its hospital businesses in China, which are starting to scale up operations after emerging from the post-pandemic era.
Despite declining profits due to a cessation of Covid-19-related services, RMG's optimism rides on its expansion into new markets to meet rising healthcare demand. Several local research analysts have also turned positive on RMG, stating that the stock is defensive amid the current uncertain economic climate.
Since the start of the year, RMG is up 14% as at April 14 to 96 cents compared to the 5.75% decline year-to-date of the STI index.
Additionally, healthcare providers use essential medical equipment and consumables for ongoing patient care, which makes medical equipment manufacturers rather defensive options for investors.
On the other hand, areas such as biotechnology, especially smaller research-focused firms and elective medical procedures tend to be less defensive. Uncertainties such as regulatory decisions, especially those from the US Food and Drug Administration (FDA), also play a major role in driving stock price fluctuations.
For instance, Tonix Pharmaceuticals, a New Jersey-based pharmaceutical company, saw an 18% surge in its stock price on March 24. This was right after the FDA announced that it would not require an advisory committee meeting to discuss the new drug application for TNX-102 SL, a promising treatment for fibromyalgia.
The absence of an advisory committee meeting is generally a positive sign, suggesting that the FDA may not have significant concerns about the drug's safety or efficacy profile. This means that Tonix Pharmaceuticals could be producing the first new drug for treating fibromyalgia in more than 15 years. The FDA has set Aug 15 for its approval.
Lacey also notes that uncertainties like tariffs also present a factor in reducing the defensiveness of these sectors as these parts of the market are more sensitive to consumer spending and economic confidence and can be hit harder in times of turmoil.
“We are taking a more cautious stance to parts of the market with substantial consumer exposure and those within the life science tools sub-sector. These segments exhibit a degree of correlation with broader industrial activity and possess a somewhat elevated sensitivity to fluctuations in gross domestic product,” Lacey states.
