Wag the dog

The immediate response to the assassination attempt saw appropriate condemnation from both sides of the fractured US political spectrum as well as from international leaders. The Democrats, already on the back foot, cut off political campaigning and attack ads temporarily until the dust settles. The assassin got Trump’s ear — and unfortunately, a couple of innocent bystanders as well — but as one smart aleck quipped, “But didn’t get his attention.”

The assassin’s motivations are unknown, and he is dead, but what is certain is that there will be no lack of conspiracy theories about it being staged, potentially leading to a wave of sympathy that may lead to Trump’s coronation in November.

But a week in politics is a very long time, much less almost four months to go. Trump’s ear incident may have come just in time to put a final nail in Biden’s and the Democrats’ flagging campaign as it was spiralling down for those inclined to see shadows and conspiracies. However, its ultimate effect on the Nov 8 election remains to be seen.

The tail may be wagging, but what the future “dog” — in this case, the US, leader of the “free world” which controls the strongest military, economy and financial market — looks like remains uncertain. While the risk of financial Armageddon should civil war take place in such a highly charged and polarised political environment hopefully remains remote, one thing is certain: with the Republican party in the ascendant and the Supreme Court 6–3 to the Right, we will not see gun control laws tightened anytime soon. Maybe it is time to take some profit from Nvidia chips and shift to gun stocks for one’s US portfolio.

See also: EU official says bloc to explore Asia pacts as US tariffs loom

Known unknowns 

Whether or not Trump “truly is blessed”, as Texas Republican Governor Greg Abbott tweeted, and is taken as a divine sign by evangelicals, falls into the realm of what another famous Republican, Donald Rumsfeld, calls the “unknown unknowns”.

However, what is known is that the US after Nov 8 will be even more unpredictable now, with a more-than-likely Trump second presidency shrouded in immunity for official acts given by the Supreme Court. Perhaps it will be good for business — especially for the Mar-a-Lago golf course and friends of Trump, including Elon Musk. Big Tech and Hollywood may not fare as well.

See also: Trump says US to impose 30% tariffs on EU, Mexico next month

Perhaps the border with Mexico does need to be tightened, as a collection of bad stuff — including fentanyl, drugs, illegal immigrants and Chinese exports using a Mexican stamp (China-Mexico trade has multiplied since the trade war under Trump began) — and now political violence. What is incoherent is the valuation of US stock markets, particularly the leaders in a few big tech companies fuelled by the AI story. As indices continue to make new highs, sharper one-day falls and corrections by individual stocks have become more commonplace. Investors who have piled into momentum trades know that a free fall results when the rug is pulled out and the emperor has no clothes.

An underlying thesis that global institutional capital has to be benchmarked to the US, which is more than 60% of the MSCI World Index, has kept international investors chasing the rally since 2023. Similarly, private banks have recommended the top stocks as easy stories because they are highly liquid.

Others hope that the “Jerome Powell put” will bail out any market correction as inflation seems under control and interest rate cuts support stocks. The market correction may slow it down. Or that may be when the narrative shifts to the US economy tanking; hence, the Fed is cutting. Those long in the tooth in financial markets know that the tail that wags the dog becomes self-fulfilling — until it is not. Markets move first, and then the narrative gets written after. When it happens, a correction can be swift and steep, like in 2022 from October 2021’s peak.

Home on a range 

If there is a silver lining, it would be better relative valuations in Singapore. If just a trickle of capital withdraws from the most liquid market in the world and searches for value for deployment, that may explain the July 2–4 breakout of the Straits Times Index (STI) we covered in my recent column. The relative valuations, albeit with the STI at a six-year high, still look cheap. A shallow two-day retreat saw the Index race to 3,500, as catch-up plays like Keppel and City Developments bounced back, and Sats broke through $3.

The last two years of REIT underperformance may be coming to an end. If rates are coming down, the sector (less US commercial real estate) has started to move and trade up. Long-suffering coupon-clipping investors may soon see capital values return gradually, save for those in the throes of corporate argy-bargy like Sabana REIT. It is time to research and shop for real assets if the tail of growth pivots to the body of value. Real assets with real cash flows may become fashionable again in a lower-rate environment.

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London calling 

Interestingly, it has been over a year since Softbank’s ARM was listed in the US in May 2023, and large UK-listed companies have threatened to shift their listings to the US. The Financial Times and The Economist, among others, have published many public commentaries and lamentations about the death of the UK IPO markets, much like Singapore’s.

Now, a regulatory “big bang” has resulted. Inspired perhaps by a mood of renewed confidence after the new Labour company replaced the self-imploding Tory party in government and a more buoyant FTSE 100 Index making new highs as investors bet on value versus growth of late, the new Chancellor Rachel Reeves, barely a week into her job, unveiled a series of relaxations of listing rules declaring that “they represent a significant first step towards reinvigorating our capital markets”, bringing “the UK in line with international counterparts”.

In summary, the new rules effective from July 29 come almost three decades since the original 1994 Big Bang liberalising the UK financial industry — which ironically saw the sellout and demise of old blue-chip financial firms like Warburg, Morgan Grenfell, and Kleinwort Benson that led the capital markets and had asset management arms deploying capital into the UK market then.

They make it easier for listed companies to carry out more activities, including significant and related party transactions, without requiring shareholders to approve at an AGM or EGM. Companies have more flexibility on timing and content disclosures, dual-class shares are more permissible, and executive pay is scrutinised less than in the US public markets.

The Financial Conduct Authority (FCA) acknowledged that some market participants will be unhappy with many aspects of the changes, which would mean greater investor risk. “That said, we do see investors invest internationally where these obligations don’t exist. And we think that these changes better reflect the risk appetite that we need to achieve growth,” said Sarah Pritchard, executive director of Markets at the FCA.

The UK has relaxed corporate governance and investor protections to drive growth and remain relevant. The understanding is that its own investors, by choice, accept riskier regimes elsewhere and provide liquidity to those marketplaces on their own accord.

Much like Singapore. We wax lyrical when there are business failures here (which are not always corporate governance failures), and regulators try to protect investors from themselves for good reason. But our investors choose to vote with their feet to volatile markets and unlicensed brokers and platforms elsewhere. And complain when they lose money here because they can. The result is that we get the market that we want — lower volatility, lower liquidity for our mid and small caps — and in our next breath, we complain that the Singapore market is not vibrant enough.