Often, the shiniest on-the-run asset class or stock market theme eventually leads to the deepest cut in your portfolio when the bubble eventually bursts. Conversely, true gems are often overlooked.
This is especially true in our artificial intelligence (AI) world. Trump flipped again on May 24, declaring on Truth Social that Apple’s pivot to India from China was not enough and may be subjected to 25% tariffs. Around the same time, I discovered belatedly the scary joys of the eraser function in iPhone 16 — a feature that Android users have had since last August. Thanks to AI, blemishes on the near-perfect photo can be erased and reconstructed with a seamless backdrop.
Today, the increasing use of AI apps makes one wonder about the recent drama surrounding photos of public figures and celebrities, such as the “peak LinkedIn” episode featuring a misidentified former DBS CEO, Piyush Gupta, in Bali. Whether or not it was a deliberate move to boost eyeballs or an honest mistake, the initial glitter may vanish or worse, opening up a much deeper hole of damage than imagined.
BBB is no Goldilocks
I often wondered if April 2 was declared to be “Liberation Day” by Trump, then what does one call April 9’s reversal? Incarceration day? Jokes aside, irrespective of his multiple flip-flops, the sheer heft and steadfastness of China’s economy, though centrally planned and controlled, allowed US Treasury Secretary Scott Bessant to take over from the trade hawks that had Trump’s ear and view his negotiating Chinese counterparts with a tad more respect.
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Bank of America called the relatively quick negotiation a couple of weeks ago the “Geneva Prevention”, where commitment to roll back 145% and 115% tariffs reversed to 30% and 10% between the US and China, led to an extension of the relief rally. To be sure, this (including the global floor of 10% as the new normal) still leaves the US with the highest tariffs since the 1940s, as risks to inflation and growth trickle back into the market with employment and GDP data or anecdotes of price hikes from Walmart to Amazon and the decline of US consumer spending.
Yet, even as US investment banks and brokers scrambled by mid-May to ratchet up their S&P Index forecasts as they declared tariff uncertainty all but over, it is no Goldilocks economy that we are talking about. It is a US economy with massive uncertainty, a decline in capital spending and consumer confidence, tourists, and a flight in academics, research and science as the Trump administration battles Harvard and student protests by cutting funding and deporting them.
For the Cassandras in markets, even while equities and crypto had another party till late May, the warning signs are flashing. With Moody’s downgrade, the US credit rating is no longer AAA and below that of neighbouring Canada, which is boosted by having a former central banker as prime minister. The US dollar continues a precipitous fall as long-term Treasuries fall, leading to a rise in the debt burden of an ever-increasing US debt.
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Trump managed to get the House to vote 215–214 to pass another expansionary budget. It will likely clear the Senate given that Congress seems to be in lockstep with Trump, who will likely make good his threats to support an alternative candidate in a primary to challenge any GOP lawmaker who does not support his “One Big, Beautiful Bill Act” budget.
Ironically, the “Triple B” Act will add over US$3 trillion of debt in the next decade. The Congressional Budget Office projects an increase in the debt-to-GDP ratio from 98% to 125%, with the deficit rising from 6.4% of GDP to 9% simultaneously, according to Moody’s. BBB for rating agencies is also the lowest investment grade level below which the debt or bonds are rated as junk. With an inauspicious US$880 billion of debt interest payments likely to balloon further, it is no wonder that 10- and 30-year Treasuries have already crossed 4.5 and 5%. As Chew On This (Issue 1183, April 7) described, it heralds The Beginning Of The End.
A few other indicators are flashing amber. These include persistently rising long bond yields even with deteriorating economic data. Last week’s underwhelming demand for US$16 billion 20-year bonds was perhaps just one bad data point. The decline of Chinese holdings of US Treasuries, dropping below that of the UK and Japan, and the proportion of foreign bids in the 30-year auctions from 70% to 60% is another indication of Brand America losing steam.
Likewise, an observed dispersion of long rates, with the US faring worst among its G7 or European allies. That might have explained Trump’s latest 50% tariff threat on Europe, or it was likely his way of pressuring them to move faster or an indirect way of punishing Europe for being more aggressive on Israel’s Gaza policy and threatening trade. And that is precisely the problem — nobody knows what he is thinking.
Irrespective, analysts estimate that the Treasury will have to sell over US$9 trillion of debt next year, leading to another Congressional battle to raise the debt ceiling soon. This month was a window for exiting US stocks on the rebound.
Mining for gems
Back home, the Monetary Authority of Singapore and SGX RegCo have issued respective market consultations in line with the direction of travel recommended by the Equities Market Review Group. Market participants may be freer to take on risks with less constraint, which leads to initial public offerings and more market price discovery capacity. One lament was that the following day after the consultations were launched, Hotel Propertiessaw an inexplicable 10% pop, which triggered an immediate query. Before the day was out, traders who jumped in saw the gains muted to just over 2%.
To be sure, those in the market should expect no less than the application of current rules. If and when they become more market-friendly, we should not forget that market discipline is demanded by all actors, including regulators, investment bankers, brokers and speculators, rising to the occasion when called.
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This column has been talking about privatisation jackpots, which have increased. However, if we, as investors, fail to price the assets better than the eye of the beholder and make the value of listing worthwhile, we should not protest if and when a sponsor or promoter takes it off the exchange. It is not a uniquely Singapore phenomenon.
Even so, those of us mining for gems and hoping for jackpot payouts should respect the rules of the game. It is also not the regulator’s role to determine the right price for a buyout. Boards, independent financial advisers (IFAs) and bankers have to play their part, while shareholders have the right to choose. To be fair, there have been offerors, as in the case of Paragon REIT and SLB Development, who have made reasonable offers at decent premiums and whose IFAs have deemed offers both fair and reasonable.
However, there are others where it seems tactical for an offeror to make a lowball offer, disappoint the market, and then raise it, just like Sinarmas Land’s initial 31 cents. By some objective measures, the revised offer of 37.5 cents still looks underwhelming, although shareholders and those who bet on buyout arbitrage are taking a risk to hope for more. However, they should not complain if they don’t get the full value of the polished gems if the offer thresholds are met for compulsory acquisition or the privatisation gets stuck in limbo.
It is nonsensical to suggest that unfair offers are why investors don’t invest in the local market. However unfair they are perceived, it is still a premium bigger or smaller than when the gem miner spots it. Issuers who are serious anyway may have to up their price. Frasers Hospitality Trustwas highlighted by this column as a potential target last year as the sponsor had previously tried to do so at 70 cents over two years ago, having failed to reach the threshold by a whisker of 0.12%. The current offer at 71 cents arguably is not just nominally higher but at a higher premium to the current net asset value. Is there room to hope for more?
Finally, if a company does not meet delisting thresholds, there was the case of Boustead Projects, which subsequently had a higher offer for the holdouts. Granting issuers multiple extensions — often with limited explanation by the offeror to fulfil its obligations, as with the case of Great Eastern Holdings, which had another “short” extension to June, is not a great look. True, for the patient capital waiting for the glitter of a fairer offer for this gem, what’s two more weeks after 10 months from last July? That said, all miners, whether gold, crypto, or undervalued companies, deserve their just rewards if they get it right.
Chew Sutat retired from the Singapore Exchangeafter 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange. He was awarded FOW’s Lifetime Achievement Award. He serves as chairman of the Community Chest Singapore
