Together with the Maga faithful and allegedly trading by Republican politicians, US retail investors have reacted to each policy assault on a sector or a stock, such as Intel Corp, by buying the dip. This prevailing mentality helped support the ageing US bull market, which has been on a tear since late 2022, thanks to the Magnificent Seven stocks and the more recent run inspired by artificial intelligence.
Trump’s initial blitz of shock and awe decrees has shifted into a cadence of creep in Presidential power leaning into the Congress’ traditional purviews, such as the legal power to enact tariffs; he sent sending Immigration and Customs Enforcement and Federal troops into “blue” Democrat states for policing work; he distorted the independence of the Federal Reserve by publicly pressuring Jerome Powell to quit and outright fired its senior voting female and black member “for cause”. These moves are likely to face legal challenges all the way to the Supreme Court, which is now stacked with Trump’s appointees.
The self-declared “most successful” US President in the first six months is a narrative that is gaining further traction, with Pakistan and Cambodia nominating him for the Nobel Peace Prize. Evidently, his art of the deal requires a strong arsenal, economic clout and the willingness to use them when expedient.
Tan Lip-bu, Intel’s Malaysian-born CEO, was publicly advised to resign due to an alleged conflict of interest involving past business dealings with Chinese companies. Just a few days later, Tan had become “a great guy” after signing a deal with the US government to buy 10% of the once-dominant chip company, which had since fallen behind the global leader, TSMC.
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The US “Industrial policy”, once anathema to American political leadership who espoused free markets and private enterprise, has now gone beyond Democrat Joe Biden’s policies to support with subsidies and grants. Equity is now up for grabs under a supposedly free-market Republican Party. It is no wonder that America has not endorsed judges for the World Trade Organisation’s appellate court, ensuring that trade grievances filed by China and others since 2019 will not be heard.
Last exit from the US
The eight-month 10.08% S&P and 11.28% Nasdaq returns look good for a late bull in its third year. Trump’s policies, both economic and political, have put pressure on the US dollar. International investors are reducing US assets by buying insurance, leading to cracks in the US dollar and bond markets. After all, Trump has unleashed broad-based uncertainty, where short-term deal-making often prevails over long-term planning and investment, which requires certainty.
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I thought I had almost completely exited all exposure to US assets. Apparently not. I have one more global fund, which will have a majority US exposure per benchmark, that I am looking to exit in September, possibly after the Fed inevitably cuts short-term rates, as it began to telegraph in August. It may be the final window to do so before reality catches up with US public markets in a traditionally tricky October.
An ex-colleague also reminded me that my jumbo insurance policies purchased years ago were in US dollars. Sigh. It may be late and disadvantageous to switch to policies based on Singdollars (SGD), given how SGD rates (six-month T-Bills) continue to mark new recent year lows of 1.45%. Still, the idea of USD/SGD parity has begun to emerge in conversations, even if it may not be imminent. Retirement is a long-term game I fully intend to play in Singapore.
China and India on opposite paths
Having been a cautious China Bull at the start of the year with a view to buying the dip, I missed most of the 17.7% rally in the CSI 300 and the even more impressive 26.19% power up in the Hang Seng China Enterprises Index. Chew On This argued some months back that the renewed participation of Western investors, including pension funds, in Hong Kong’s initial public offerings was a clear indication that China is no longer “uninvestible”, as JP Morgan once infamously declared.
The US and Chinese markets are now polarised at either extreme of conventional asset management, and buy-side brokerages, as well as private wealth, are underweight in China for the first half of this year. Thus, it was logical for a flutter, given that the lows for the market in the fourth quarter of last year, as we had argued, marked the bottom, as Chinese policymakers appeared more determined to draw a line under asset prices and focus on economic growth at the time. Being typically Singaporean and kiasu, I forgot how to buy high as the market started building up strength to sell higher. I have been waiting for pullbacks all year, with a few small, nervous trades, and I will continue doing so.
At least the Chinese proxies in Singapore that we had highlighted before, such as CapitaLand China Trust (CLCT), Sasseur REIT, Yanlord Land Group, Yangzijiang Financial Holding and Yangzijiang Shipbuilding, have performed in line with or better than expectations. They may continue to provide access via the Singapore Exchange. The impending CapitaLand Commercial C-REIT, which is priced conventionally at book value, could be interesting for CLCT and CapitaLand Investment, both of which still trade at a discount.
Short of outright war, China has thus far demonstrated the ability to stand up for itself in the global tariff war with America and the resilience to use rare earths as a bargaining chip for chips. The path may be rocky, but domestic confidence, as demonstrated by Chinese retail investors opening accounts, is once again on the rise, buoyed by global institutional and private wealth investors who are still underweight and dipping their toes in.
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A repeat of last year’s pattern could see a September spike in Chinese indices and exchange-traded funds. Hopefully, for those invested, it will last through October’s Golden Week and not experience another short-term bubble burst. This time, it does appear to have more legs.
The “modifying” returns in the Indian markets, supported by legions of new individual investors in the last couple of years, did not seem sustainable, hence our negativity at the beginning of the year. The Nifty is barely gaining, with just a 3% year-to-date increase, offset by the decline of the INR/SGD. Politically weakened after losing his absolute majority in the Indian Parliament, Prime Minister Narendra Modi now faces a 50% tariff burden for exports to the US, including an additional 25% levy for purchasing cheap energy from Russia, according to the US.
The significant relocation of US companies from China to India, which was anticipated when reciprocal US-China tariffs reached over 100% and Apple discussed shifting iPhone production to India, appears to have been lost in translation now. India and China — old political foes whose military throw sticks and stones at each other in disputed Himalayan border regions from time to time — have started to get friendly again. The detente and an EU Free Trade Agreement with India discussed in this column in February are still out-of-the-money long call options. As Modi retreats to Indian “self-sufficiency”, our original contrarian view on Indian markets remains.
Closer to home
Having “got away” with the global tariff minimum of 10% versus the rest of Asean which have been levied up to 40% for Laos and Myanmar with other majors around 20%, Singapore’s Straits Times Index (STI) has outperformed the rest of the region thus far with 15.92% return for eight months this year — perhaps quite justifiable given latest positive trade numbers.
Losing yet another prime minister, the Stock Exchange of Thailand is down almost 19%. Indonesia tethers on riots and domestic violence, keeping investors concerned. A political and economic realignment is taking place in the post-Jokowi era, with power and funds in state enterprises shifting to the Daya Anagata Nusantara Investment Management Agency, the newly established sovereign wealth fund. Banks and large families are being encouraged to lend at low interest rates or purchase bonds at below-market rates.
A messy and unstable region cuts both ways for Singapore. Economically, we are interdependent, and we benefit from stable, peaceful growth among our neighbours. Together, as Asean, we have a comparative advantage collectively in terms of resources, labour, and China+1 alternatives for the West. Financially, our safe haven status and rule of law have always been an attraction.
As we enter September, market momentum in Singapore, represented by the STI, has been stuck in a range below 4,300 points since breaking through 4,000 points a few months ago and has slowed following the results reporting season in August. Some of the long-overdue revaluations of mid- and small-cap stocks, which may be beneficiaries of the drip feed of Equity Market Development Programme (EQDP) funds into the market, have also been a tad more circumspect — save for REITs, which are steadily accruing in tandem with falling global rates. My “defensive” portfolio, which includes REITs and special situations, has ironically performed better than the STI overall, largely due to luck.
The surprise this September that may be in store, however, is the next instalment of EQDP allocations alongside policy initiatives for investor protection that have been signalled to the market. As many undervalued mid and small cap stocks may have perceived put protection for investors awaiting these announcements and flows, the risk-reward may be favourable to the upside for this segment and the market overall. Astute investors are starting to recognise that the $5 billion allocated by the Monetary Authority of Singapore will eventually be multiple of that number. As those fund managers allocated are committed to raise more assets behind these strategies, our surprising Singapore market may be on its own trajectory here.
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
