With the Vix volatility index racing to a red-light-flashing level of 45 and up to 20% falls for consumer stocks with global supply chains from Apple to Nike after China started 34% retaliatory tariffs, the message is also cold comfort to US portfolios burned for those that bought all the January outlook calls from private and investment banks.
Unfortunately, Chew On This’s increasingly shrill warnings about the US and its bell weather stocks, culminating in the previous issues and suggestions to buy puts and shorts, have proved accurate thus far. We remained convinced that “The Beginning of the End” (1183) had just started. The carnage in the US stock market in an era the UK Prime Minister describes as “the world as we knew it has gone” just as another might have begun.
For those planning to gradually average down Nvidia and Tesla, I fear it may just be another season of “catch a falling knife” as technical charts for most stocks and US indices go beyond correction to triggering the proverbial bear.
Even if US Treasury Secretary Scott Bessent keeps a stiff upper lip and sticks with his boss (for now), describing the market correction as a Magnificent Seven problem and not a Maga problem for Trumpian policies, the market isn’t buying it. Capital flight has already started from erstwhile allies in European and Asian portfolios.
See also: Asian stocks tumble most since 2008 on global recession worries
Hangman
Even First Bro Elon Musk has suggested that Europe and the US should be a free-trade, non-tariff zone. Chew On This speculated in December last year that punters of the Bromance Trade were in for a potentially wild ride. It now appears only a matter of time before the temporary Doge chief leaves the administration, as his political heft in carrying Trump across the line seems to have waned.
An easy billionaire target that cost the Wisconsin Supreme Court election, given that even his million-dollar (potentially illegal) cheques to voters failed to “buy over justice”, Musk seems more vulnerable to Democratic attacks in political contests than the still popular President, even if his poll ratings have started to decline before his first 100 days.
Musk’s commercial brand value, as evidenced by Tesla’s stock prices and car sales, is declining alongside his political one. With US$5.4 trillion ($7.3 trillion) of market cap destroyed in the first 75 days of Trump’s presidency, will a bromance fallout create an additional storm for his private and public investments? Will Trump’s Truth Social, which tried to raise up to US$2.3 billion and has since aligned with X and is now Musk’s platform for ranting since last year’s election, start spewing alternative facts soon?
See also: Market rout looks set to extend this week, STI ‘particularly vulnerable’: IG
His fervent supporters and board hope he will drop Doge and refocus on his CEO roles, but the brand and value destruction may be more permanent in the face of global consumer boycotts. Could this be a preamble to the fate of the US, whose President may have managed to impair its reputation permanently in less than 100 days? Is it recoverable?
Hang on
For Maga believers and true Republicans in the way Donald Trump defines them — not Rino’s (Republicans in Name Only), especially those in the rust belt states who were cheering on the liberation day tariffs — the ironies are starting to play out.
Car maker Stellantis has halted production at a Canadian and Mexican plant and temporarily laid off 900 US workers. UK’s Jaguar Land Rover has also decided to pause exports to the US and Nintendo has delayed its Switch US rollout. Small and big businesses in America will be hit, without even taking into account Chinese retaliatory tariffs that hit “red states” hard, especially farmers.
As Trump keeps his eye on his long-term Maga goal, analysts point out that an American-built iPhone will cost the consumer 3.5 times more than one built in China. Likewise, it will cost Americans four times more to consume Nike sneakers made in the US than in Vietnam.
This scenario assumes they had the labour who could do this anyway, as the Trump administration continues to deport “illegals” who generally do low-wage jobs in the US or the talent by accidentally or deliberately deporting PhD students in universities for protesting, something one would have associated with communist countries in the past.
Even if it happens, factories and equipment take a long time to build. US workers must also be trained but may not necessarily accept wages customary in Bangladesh. However, one pundit suggested that perhaps Project 2025, the right-wing ideology that underpins the Maga movement, would have no qualms about non-ESG-compliant sweatshops and abolishing the minimum wage.
Still, as China controls exports of rare earths and metals, where will the Americans get their resources to make their chips and military equipment from? Russia by trade, Ukraine by coercion or Greenland by force?
Sink your teeth into in-depth insights from our contributors, and dive into financial and economic trends
Hang together
Though not complex, the magic formulae for the reciprocal tariffs applied by the White House appeared to be randomly applied to some countries, including poorer nations. Cambodia and Lesotho were hit with nearly 50% tariffs, or half their trade deficit with the US. These states are poor enough not to be able to afford American tech and Boeing planes; it is harder to see how they could now afford to buy Harleys and Levi’s. Now, they are hampered in exporting, too.
At least 50 countries have come to the US to ask for a deal, claimed the White House administration after the first bloody weekend. Beyond the markets and anti-Trump protests across the US and in European capitals, it also saw four Republicans switch sides in the Senate to reverse Trump’s Canadian tariffs and seize back the power to tax from the Executive back to Congress. However, it remains to be seen if any part of the government, even if willing to break with a strong and determined president, can stop, reverse the direction of trade travel or slow it down so businesses and supply chains can adjust.
Some, like Taiwan, are taking it lying down, preferring to negotiate in private but declaring compliance. Friendly parties like the EU and UK are lining up retaliatory measures. As unlikely as the US voting alongside Russia, North Korea or Iran in the UN, we see elements of coordinated action by Japan and Korea with China.
For those who complained about why Singapore had taken a muted stance and not railed against levying a 10% tariff on a friend despite having a free trade pact, let’s get real. That 10% is the new zero tariff rate comparable to the UK and Australia. Unless, of course, you are Russia and Belarus, which is zero. We have more to gain to keep our heads down and try to navigate with our Asean cousins, who have been hit by 17%–49% tariff rates, to see how we can partner to increase trade with others, including the EU and among ourselves.
Chew On This suggested in March that corrections in China and Japan mainline and tech indices could make their ETFs attractive entry points. For instance, we suggested a low- to mid-80s entry point for HS Tech ETF. Although resurgent China bulls saw that as too pessimistic, the forecast has become a reality. The Lion Nomura Japan ETF, too, has reversed 10% less than the stock market correction as a strengthening yen cushioned the fall. Trading less than a dollar now, these look like prospective entry points for those who have sold off to wade back in gradually.
Hang In there
Will overinflated US stock prices deflate in proportion to the base 10% tariff rate or deflate up to 50%? One doesn’t have to go that far in history to see the 2022 meltdown following the 2021 Covid-timed meme stock fantasy to note that 50%–70% is not unrealistic. A lot of rope had been given to market investors to hang tough. Hanging in there, as recommended by many bankers and brokers now (including one who was sharing via LinkedIn on using margin accounts to average down), may end up hanging oneself if on leverage.
What should those who invest in Singapore do as belief in the Straits Times Index (STI) propelled it to a new record of 4,000 but promptly reversed course and has turned much more muted so far? We may be in for a correction, too. After all, a trade decline, especially if our Asean neighbours are impacted, may see bank stocks easing if loan demand shrinks a tad. Still, this should not be a cause for panic as the banks are well-capitalised and have more cash to lend than not. Already, headwinds are felt as interest rate markets move to forecast up to four rate cuts in the US this year from one.
Given their dominance in the index, which has held up more because funds wanting to stay in Singapore switched to Singtel, which is also a top-four index weight, we have seen a dip which provides entry into STI ETF for longer-term investors who could consider deploying CPF Investment Scheme gradually. With many stocks trading deep value discounts to their net asset value, any corrections in these property stocks or Yangzijiang Financial Holding could be good places to park funds for the carry. Already, the REITs have been more resilient in light of the more favourable rate environment.
Investors can also consider the Singapore Exchange (SGX). A more volatile market environment is good for its trading business of derivatives commodities. Therefore, even if we have to wait longer for IPOs, so what? Given the well-supported but dull Singapore market since the announcement of the equity market initiatives by the Monetary Authority of Singapore, which led to higher y-o-y equity market volumes in February and March, SGX’s stock has held above $13, while banking stocks have corrected.
Like REITs, SGX may benefit from an institutional reallocation from local banking stocks but weighted in the financials subsector. Meanwhile, I am sleeping comfortably without having to manage US stock positions while travelling with friends and discovering Oman, which is similar to Singapore in many ways, a country striving to live in peace with other countries and being a friend to all, even though Oman is in a somewhat troublesome neighbourhood. Look out for more stories next week.
Chew Sutat retired from the Singapore Exchange after 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
