As US tariffs invoke 'Day of Infamy', Singapore small caps awaken from Frankenstein-like slumber

As Chew puts it, Vietnam sold mainly furniture and other lower-value goods to the US, the kind of goods Americans could not be bothered manufacturing, leading to the trade imbalance. “There’s no rationale to this. Maybe someone thinks the Vietnam War is still ongoing,” says Chew, speaking at a seminar on April 5.

Chew warns that the tariffs will result in “huge” consequences. “You cannot change the supply chain. You cannot move your Vietnam-based furniture manufacturing, one of the country’s biggest exports, to the US. So, who’s going to make the furniture in the US? The US already has full employment and all the foreign workers are leaving.”

As such, someone has to bear the pain, which is most likely the US consumer, although suppliers, retailers and everyone else will also share. “Imagine the poor Cambodian lady earning $200–$300 sewing a dress, cycling back to a house with no electricity and then she is supposed to be ripping off the US. I’m not sure how that actually works. There’s going to be a lot of repercussions to this,” he says.

According to Chew, the tariffs will kick off a negative feedback loop. “Because of the tariffs, consumers and corporations will turn cautious. Once they turn cautious, they won’t buy so much and when they won’t buy so much, sales will come down. They won’t hire so many people. Then you get this feedback loop: No jobs, so I won’t buy so much. Then this thing will spiral. So recessions usually happen when something kicks off,” he elaborates.

See also: DBS lowers STI year-end target to 3,855 points

As a rough estimate, the US imports some US$3 trillion ($4.03 trillion) of goods. Applying an average tariff rate of 20% is akin to the government collecting taxes of some US$600 billion, equivalent to 2% of the US GDP. “So, the risk of recession is extremely high,” says Chew. The situation will be worse as more countries impose retaliatory tariffs. After all, the US is the second-largest exporter in the world. There will be additional secondary impact and further hits to confidence, he adds.

Nonetheless, there might be some positive aspects because of the tariffs. As employment slows down and inflation edges up, the Federal Reserve and other central banks will now be more compelled to cut rates — three likely for the US this year and a similar number for the UK, says Chew.

See also: Can Europe and emerging markets take the lead amid diminishing US exceptionalism?

Singapore small caps awakening
Singapore is also hit with the same 10% rate, but there is a positive spin to this. “By default, Singapore has become one of the most competitive exporters to the US because we are 15% to 20% more competitive than everyone,” says Chew.

There are some reasons to stay upbeat about Singapore stocks. Chew points out that despite the big selldown in the US, the S&P 500 is still trading at a historically high valuation of around 25 times. In contrast, Singapore is trading at just 12 times, despite the record high achieved by the Straits Times Index (STI) in recent weeks.

Beyond the blue-chip STI component stocks, PhillipCapital sees potential for small- and mid-caps in Singapore to do well. The key reason is the impending injection of $5 billion into the local market — money that the Monetary Authority of Singapore will allocate to fund managers to invest in local stocks, with a bias towards smaller caps. This $5 billion is part of the market revival measures that a top-level committee is proposing.

For one reason or another, small caps here have underperformed for years. The index of Catalist stocks has been down more than 40% compared to STI stocks since 2018. The recent interest pick-up in certain small-cap counters might be the start of more to come. “Small caps, like in a Frankenstein movie, have started to wake up,” says Chew.

Assuming that a minimum of 30% of the $5 billion is allocated to Singapore equities, of which half goes to small- and mid-caps below $1 billion, the $750 million is equivalent to around 3% of the available free float, according to Chew’s estimates, who expects the funds to be injected from the third quarter onwards. “If you can, you can get ahead of this capital injection because it will be meaningful to the small- and mid-caps,” he reasons.

The second reason is many small- and mid-caps are trading at cheap valuations. The local bourse is suffering from an ongoing march of privatisations as controlling shareholders buy back their own companies that are unloved by public investors. Generally, the premium paid has been around 50%. “No owner will want to pay 50% unless you can make more than 50%, so basically, it just shows that there’s a lot of deep value in selected small and mid caps,” says Chew.

Thirdly, some of the small caps are enjoying earnings momentum that are more immune to the external environment, such as those in the construction sector, contractors and building materials alike, which rely on domestic demand.

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Absolute 10
One such counter, included in PhillipCapital’s Absolute 10 model portfolio for 2Q2025, is Wee Hur. Besides functioning as a contractor, Wee Hur operates dormitories as well. The company will book a one-off gain of $319.8 million from the divestment of its student accommodation portfolio in Australia. Further upside comes from the new worker dormitory, which will see a 65% increase in bed capacity as the dorms become operational this year.

Besides Wee Hur, PhillipCapital has classified two other stocks as so-called rerating plays for this quarter. Leading property player CapitaLand Investments is on track to reach its funds under management target of $200 billion by 2028, up from $117 billion in FY2024 and $99 billion in FY2023. In addition, the return of event-driven fees and the robust lodging business will underpin further growth in fee-related revenue.

Keppel, actively transforming itself from a conglomerate into an asset manager, is likely to see “sluggish” FY2025 earnings. However, PhillipCapital expects Keppel’s share price to be driven by asset sales from their target of $10–$12 billion asset monetisation by the end of next year. Currently, $7 billion has been completed, with at least $17.5 billion in assets to be monetised.

Stoneweg REIT, formerly known as Cromwell European REIT before new controlling ownership and management, is pivoting toward the light industrial/logistics sector to capitalise on nearshoring trends and growing e-commerce. The REIT has no near-term refinancing requirements until 4QFY2026, and PhillipCapital expects a forward dividend yield of 9%.

PropNex, Singapore’s largest real estate agency, is another new addition to the 10 stocks for 2Q2025. The company enjoys a 64% market share in the units transacted backed by 12,636 real estate agents in Singapore. PhillipCapital expects 46% earnings growth in FY2025, which will be driven by the spike in new home sales.

Due to worries over the imposition of tariffs even on small-value parcels, Sats’ share price has dropped more than 16% since the start of the year. PhillipCapital believes that much of the downside risk has already been factored into the current share price, which is now trading at a forward price-to-earnings ratio of 18 times.

Last but not least, no portfolio here can do without banks, liked by investors for their clear commitment to return excess capital to shareholders. Oversea-Chinese Banking Corp (OCBC) is seen to enjoy stable FY2025 earnings from higher fee and trading income and loan growth. Its CET1 is the highest among the local banks and PhillipCapital expects OCBC to continue to pay a special dividend for at least two more years to reach their CET1 target of 14%.