The old proverb, “Hope springs eternal”, shows how human nature always finds fresh cause for optimism. This rings especially true as we go through winter and on to Jan 20, when Donald Trump moves back into the White House. For now, we probably will not have another riot on Capitol Hill as the Proud Boys and other Trump supporters celebrate a reverse of the 2020 election that they say was “stolen” by Joe Biden.
While many North Americans celebrated Thanksgiving last week, others, specifically Canadians and Mexicans, were threatened with 25% tariffs by Trump, who was in yet another public bluster, setting the stage for future negotiations. China, of course, is being similarly targeted. Already struggling yet again with the premature run in October turning cold, its markets probably have little room to fall from this point, with two-thirds of those gains already given back. Both locals and international investors are resigned to the realisation that the climb back is a long march, even as China faces trade skirmishes with Trump, which is not unlike Biden’s industrial policies.
Given Trump’s isolationist tendencies, Beijing may find consolation in the fact that Taiwan will have less backing to agitate again for independence. The cooling of temperatures across the Taiwan Straits will be welcomed not only in East Asia but worldwide as hot spots from Ukraine to Israel and its neighbours continue to rage.
There are signs, however, as warned by Chew On This last month, that Trump-induced market optimism is waning. The narrative before Trump officially takes over is shifting with irrational consistency, from being good for corporate earnings to bad for inflation. His stance on tariffs and the deportation of illegal immigrants will eventually hurt American consumers and businesses alike.
Some of Trump’s announced cabinet appointments, if confirmed, might hurt the very industries they are to oversee. Robert F Kennedy Jr, named the health secretary, is a known anti-vaxxer. Other nominees, such as Matt Gaetz for attorney general, have been withdrawn in the face of strong pushback from the public and the Republican senators. This leaves the possibility that some of Trump’s avowed extremist policies may get watered down by the Senate and the House. Meanwhile, Trump’s “bro”, Elon Musk, is in a legal fight with OpenAI and Microsoft. How long this bromance can last could be tumultuous for your US portfolio; swings can take place overnight, and the risk of getting caught on the wrong side is real.
Reversion to mean
See also: Asian Currency Index falls to two-decade low on Fed, tariff bets
US equities have not been the only ones paring gains since Nov 7. Once on a tear, Bitcoin failed to break US$100,000 ($133,950) decisively and dropped back below US$97,000.
What’s more telling is the dip in the 10-year US Treasury bond yield to 4.21%. The market is signalling that the “Trump Bump” may ultimately be recessionary if not stagflationary. Notably, the two-year yield is at 4.2%, almost inverting within a month of the election. This is not a good sign.
If the Fed cuts rates again in December simply because it fears impending economic uncertainty, it might dampen business and consumer spending, raising risks of a hard landing. The reversal of the US dollar’s strength from late November appears to be another sign.
See also: Politics, economics and markets create a 2025 three-body problem for the US
In the aftermath of the Japanese and US elections, the yen versus the US dollar fell precariously from 140 to 157, coinciding nicely with my recent holiday in Japan. Since then, the yen has gained to just below 150 as a stronger Japanese economy may inspire the Bank of Japan to raise rates in December while the Fed may cut. If so, risk assets that recently bubbled up may be in for some turbulence as various carry trades unwind in thin liquidity that typically marks December. However, my Lion-Nomura Japan Active ETF still sits pretty as I continue to ride on the hope of stronger domestic equities with a strengthening yen.
Also, I’ve started wading back into Chinese REITs. I see dips from Trump’s outbursts as trading buys. Hopefully, there will be quick turnarounds as its economic recovery meanders on. After the early October burst, Chinese markets settled within a narrow-range equilibrium and were unlikely to break up or down rapidly. Chinese regulators, I suspect, prefer boring markets like Singapore, too.
Back home, the S-REIT index, having overcorrected by up to 12% on the downside, seemed to have again hit what may now be a triple-bottom level in the last two years. Shedding the fear of higher rates, some oversold REITs have started coming back amid lower volumes. My bit of careful bottom fishing these last few weeks has helped reduce the mark-to-market red ink for those counters bought before the US election. If a winter flu of mild risk-off or profit-taking out of risk assets takes hold this December, this defensive posture may pay off. Nonetheless, I will have some turkey from the dividends collected this Christmas.
Respect for all
Last week, I was delighted to attend an inaugural lecture series organised by the Singapore University of Social Sciences in honour of my former chairman at the Singapore Exchange , the inspiring JY Pillay, who, at various other times, chaired Singapore Airlines , Council of Presidential Advisers and other Singapore Inc institutions. It was befitting that the first lecture of this series was by President Tharman Shanmugaratnam, who, as a young civil servant, worked under Pillay on global governance challenges.
President Tharman’s tour de force covered several topics and issues of the day crowded out by the political noise and rhetoric this year, where more than two-thirds of the world went to vote. In that hour or so, I was transported by President Tharman’s call for a long-term perspective to view a world where good rational sense prevailed, where multilateralism, global rule of law and critical topics impacting humanity should be framed. The most significant challenges we face today are precisely the ones that short-term politics, be it left or right, cannot solve.
First is climate. Tharman pointed out that amidst the cacophony of noise at this year’s COP conference in Azerbaijan, there was agreement on implementing the UN’s high-integrity carbon crediting mechanism — almost 10 years after it was signed. This agreement provides a source of climate finance for developing nations and transfers across the geography of credits. It marks significant steps towards creating opportunities for public, private and philanthropic capital to blend together and coalesce for solutions to get us to the holy grail of net zero.
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It is heartening to see our local companies like Singapore Airlines adopting sustainable aviation fuel while still being competitive and profitable, or Sembcorp Industries well underway executing its “brown” to “green” strategy and being appreciated by investors.
Tharman, too, spoke about profound artificial intelligence (AI) risks, not just at the hands of bad actors but also the dangers of not having human beings in the loop. He warned of risks to global security and democracy through misinformation and polarisation.
Ironically, while the Western media routinely chastises Beijing for implementing seemingly tough stances on online misinformation in a bid to protect the young, they made little disparaging remarks on one of their own, Australia, which implemented restrictions on social media for children under 16 years old this past week.
I, too, recently debated with a couple of British journalists who complained about Singapore’s Pofma laws. My point was that while we merely ask for correction of misinformation, the UK used hate speech laws modelled on Singapore to jail its citizens who were part of or incited riots this summer.
From Tharman’s point of view, the challenge was to find ways to maximise the benefits of AI while accepting that it will come with some bad outcomes and, therefore, the goal to minimise the worst ones. To this end, international cooperation and governance between major powers are needed.
As investors continue to flock towards the AI theme in the US, I wonder how many have ever paused and thought about the ethics of markets and their consequences. As I surmised last week, markets have no morality, but we can choose how we participate in them.
The third theme flagged by Tharman was the challenge of preserving optimism as societies age, with many developed countries having unsustainable health burdens and ageing populations. Pension models, from defunct defined benefits to defined contributions, struggled. The former is that as working adults as a group become smaller than the seniors, the weight of the burden falls over; the latter is that the investment risk for contributions shifts from governments and companies to individuals. As we have learned with CPF, some individuals don’t manage their risk well. Nonetheless, our returns for CPF members have been better than those of MPF in Hong Kong, for instance, who are given complete discretion versus a large portion of collective management and guaranteed return here. If only banks had sold dollar-cost averaged STI Index returns to savers in HK, they would have done better than our 4% special account rate here!
And there is light
Tharman’s lecture highlighted that as societies tackle climate challenges, adopt AI and address ageing population issues, there are opportunities to address so-called “yellow vest” problems. That is where the perception that the elites don’t understand the problems that individuals face today. Perhaps reflected by the results of the recent US elections, I thought.
He also spoke of the need to arrest declining trust and not just send the invoice for public spending to the next generation. We need inter-generational equity in policy thinking and must respect the importance of justice and individual freedom. Most importantly, we must have solidarity to build optimism.
The fact that we are having this discourse in Singapore instead of engaging in Trumpian exchanges that are prevailing globally, gives me hope for my optimism. Over the years, this column has earned a reputation as an eternal optimist, particularly in our own local market. As such, I hope that with the Capital Markets Review now well underway, which is engaging many actors across the ecosystem, solidarity on this front will take us to a better place in 2025 when its work is done.
Chew Sutat retired from Singapore Exchange Stock 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, and he was awarded FOW’s Lifetime Achievement Award. He serves as chairman of the Community Chest Singapore
