Besides shifting news cycles in the US, Prime Minister Benjamin Netanyahu has led Trump, who campaigned that he would end all wars, into a new one in the Middle East.
The writing was on the wall just when National Security Director Tulsi Gabbard, who just months earlier had declared that Iran was nowhere close to nuclear capability, retracted her view of the Islamic Republic being ready in “two weeks” just before the B-2 Stealths were activated. Unsurprisingly, after all, since Trump himself, when queried about her US intelligence advice before, told the media to ignore her.
It is sad and tragic that the Western media went to town with the reporting when an Israeli hospital was hit, but the bombing of a similar Iranian medical facility barely deserved a footnote. All this while, Palestinian casualties continue to mount. But like the stealth bomber, these stories, too, have shifted into the back pages as the general public becomes desensitised to the daily horror taking place in Gaza.
Trump may eventually get the Nobel Prize that he allegedly craves. The White House hosted the army chief of Pakistan, who had just nominated Trump for the Peace Prize, while Prime Minister Narendra Modi of rival India was left high and dry at the G7 summit with a last-minute meeting cancellation.
See also: Riding the S-curve, parsing the S-trades
The global economy, still reeling from residual Covid supply chain disruptions, the Ukraine war and “now you see it, now you don’t” Trump tariffs, is hit with another energy shock. After all, 20% of the world’s oil consumption that goes through the Straits of Hormuz may be disrupted if the Middle East conflict escalates, with India and China being the most reliant.
Might is right
US equity markets have been relatively sanguine through the first half of this year. The global selloff of the April 2 Liberation Day tariffs had reversed course after April 9’s “Taco” (Trump always chickens out). There were indeed wobbles each time details of the “beautiful deal” made with China in Geneva unravelled, thanks to the “very smart” Chinese President Xi Jinping.
The markets have also largely ignored the potential risk in Trump’s signature Big Beautiful Bill, or “Triple B” Act, working its way through Congress, which is part of potential punitive taxes by the US on foreign investors and capital.
Taco believers are confident the US equity market will always recover, so they ignore the falling US dollar. Typically a safe haven in global uncertainty, the greenback uniquely had the worst run among the majors this year; likewise, the cost of US long-term borrowing continues to rise.
See also: US stocks dip before Trump-Zelenskiy meeting, retail earnings
With the Fed not kowtowing to Trump to reduce rates, sticking to the dot plot and fears of tariffs and now energy shock inflation, the equity risk lights are not just flashing amber — they are red. The ever-widening crisis in the Middle East is creeping up close to the 90-day tariff relief extension announced on April 9.
From the self-proclaimed more than 90 deals from countries coming to beg Trump to only one substantial one announced with the UK (which has since been technically reneged somewhat), a Mexican standoff with China (pun intended) and the Japanese contingent who have returned home frustrated with purportedly one-sided US demands, one has to hope that come July 9, Trump will do a TikTok. The platform’s US offering has been granted yet another 90-day extension.
Going by what happened to Iran, it is clear that public statements on Trump’s position cannot be relied upon, including his own Iranian timeline of deciding in “two weeks”, as the Stealths dropped their bombs within days. Trump may well be playing 4D chess with a considerable amount of hyperbole and alternative facts promoted as truth along the way to mess with the opponents. One could only admire how the US took out Iran’s nuclear capability with their bunker bombers while ostensibly negotiating as a ruthless but smart move.
However, it is one thing to do this with an enemy with dubious potential intent and prevent them from acquiring powerful weapons. In attacking friends and allies over trade and territory (Greenland and Canada), and potentially unchecked by Congress and dismissive of the courts, his mercurial worldview, where might is right and in your face, makes it nearly impossible for corporations to make decisions on investing and for consumers to budget.
As some global institutional investors vote with their feet, I, too, sold one of my two remaining global funds with substantial indirect exposure to US large caps and fixed income.
A safe haven?
With powerful bunker busters like the 13,600 kg GBU-57 Massive Ordinance Penetrator that can penetrate 18 metres of concrete before exploding, the Iranian uranium hidden in the tunnels of Fordo may not have survived the bombings. Is there anywhere one can hide?
Likewise, volatility in global energy markets and uncertainty on tariffs may spill into a summer of rock ‘n’ roll in equity markets. Questions remain whether liquidity will be sufficient to absorb potential significant shifts in US Treasury prices and the US dollar if Cayman registered hedge funds (now a top 5 geography for holders of US debt) may need to raise liquidity to sell or top up margin calls.
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The steady-as-it-goes Straits Times Index may, too, be caught in some crosswinds, like the first week of April this year, even as it hovers near the 4,000-point mark. A safe and secure bet in most times of crisis, and boring as it goes, backed by a strong Singapore dollar, our blue chips have performed remarkably well in the last 18 months.
While the three banks, which make up half of the weight of the Straits Times Index (STI), helped the latter break out from its 3,300–3,400 band, it was other stocks, such as Singapore Telecommunications, Singapore Technologies Engineeringand Sembcorp Industries, which ended up with larger percentage gains (up to 60%–80%) stealthily, to the surprise of some non-readers of this column.
It does not pay investors to follow the fashionable smart money to lament about the Singapore Exchangeor the local market but to look more deeply at where the opportunities are. Naysayers continue to poke holes at the STI’s relative success, declaring that only in the blue chips can fairer and better valuations be found while nothing is going on in the rest of the market or there is a dearth of public listings.
Or, as expressed by the index, the market is more buoyant only because of the anticipation of $5 billion to be unleashed by the Monetary Authority of Singapore to select fund managers later this year because of some “frontrunning”. They may have got that wrong, too, as the recommendations from the committee were for this pot to be allocated to non-STI stocks, where sadly, perception has led to a long tail of stocks that are not well-recognised, supported or valued by our public market investors.
Inevitably, however, the STI will not stay unscathed if there is impending global equity volatility and risk-off. Yet, its corrections may be more muted with a lower equity market beta than other markets at much higher valuations. The whole market and not just ST Engineering may be “defensive”. However, STI regional consumer plays, like Wilmar International, Thai Beverage, Genting Singaporeand Venture Corp, which have lagged these cyclicals with some negative geographic or corporate overhang thus far, may have fewer downsides. Investors who need to raise cash often take profit from market leaders where they are deep in the money first. And if it all goes well, these laggards may well catch up.
Small may be beautiful
This year, my preferred trade carried on the local big caps and the index, has been the valuation re-discovery of gems in the long tail of undervalued mid and small caps. At this stage of the cycle, where modest and moderate upside for the STI may be at risk from geopolitical and economic risks, some of my compatriots, having sold on the way up, are keeping cash to buy in on summer corrections.
For others, mining for gems has provided “jackpots” for investors if an investor is positive about privatisation offers or M&A deals rather than bemoaning the prevailing commentary about de-listings or the announcement of a “strategic review”.
All this has already resulted in many smaller listed companies gradually and stealthily getting more liquid and revalued, especially those with substantial real estate on their books. Take the hospitality sector. This column hypothesised that with Singdollar interest rates easing as liquidity is flush in Singapore, sponsors and substantial shareholders may find it opportune to acquire before US rates turn.
We have already seen offers with significant premiums for Frasers Hospitality Trustand Amara Holdings. Acrophyte Hospitality Trust, too, has gained 50% with the announcement of a strategic review. More recently, there have been unexplained pops in stocks as diverse as Hotel Propertiesand Banyan Tree Holdings, where trading volume has expanded. More broadly, corporate announcements about strategic reviews, such as Grand Venture Technologyor potential spinoff listings of parts of the group’s business from Thakral Corp, LHN and Yangzijiang Financial Holding, have led to valuation uplifts of these stocks backed by increased liquidity.
As the rumour mill expands from construction companies benefiting from massive infrastructure projects in Singapore like Huationg Globalto energy plays like Rex International and RH PetroGas being beneficiaries of the Middle East messiness, it is worth remembering that not all raw ore uncovered turns into polished gems.
Suppose a stock is backed by real discounted assets, positive earnings growth, cash flow and dividends; investors will recognise it on its own merits and be revalued or privatised sooner or later if one can patiently wait. If not, when the speculative show is over, not even air cover in broad daylight can help one recover from the loss.
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
