Now, instead of a final phase of negotiations, the bombing started. Trump, no doubt smug about his recent adventure in Venezuela, was apparently convinced by Israel that following the assassination of Supreme Leader Ali Hosseini Khamenei, Iran would offer an “unconditional surrender” with regime change. As it is now apparent, no one in the US administration is still mouthing this phrase, even with multiple decapitations of the Iranian leadership, including those described as pragmatic moderates. Less has also been said about Iran’s nuclear capability, which was supposedly obliterated in the earlier round of bombing less than nine months ago.
On Truth Social, Trump is all about “winning”. The US and Israel have “destroyed 100% of Iran’s military capability”; Iran’s navy is at the bottom of the sea, including one sunk by a US submarine on her way back from India. What is also clear is that Iran is still raining missiles and drones on neighbours, targeting oil facilities, US bases. Some of the missiles got through Israel’s much-vaunted Iron Dome and many others are pointed menacingly at the Strait of Hormuz, daring any commercial tanker to run the gauntlet.
The flip-flops were not only constant but came with growing frequency. Having claimed to achieve all shape-shifting objectives, the US is “winning” and considering “winding down” its involvement. Before doing so, Trump jibbed at the UK for being late to a party that was over, and threatened both European and Asian allies for not being overly enthusiastic in sending their troops to help keep the Strait safe for shipping. And straight out of Putin’s playbook in Ukraine, Trump has also threatened the day after to obliterate Iranian energy power plants. For the US, the cost in billions is piling up, and so is the damage to its reputation among friends and hostility among foes.
Friends with benefits
Beyond military and political targets, both sides are increasingly targeting their respective energy infrastructure. The inevitable impact on energy and gas prices, which is already inflationary enough to stay the US Federal Reserve’s hand on interest rates this month, has shifted forward rate expectations.
See also: Stock selloff extends as Iran conflict drags on
The market, which was pricing one to two cuts this year from the Fed, has gone flat. This has even given the safe-haven gold price a wobble of over 10% down, and put a pause on rate-sensitive yield stocks, including Singapore’s REITs and property stocks. The question is, will this persist, and if so, for how long? It is hard to see the Iranian regime capitulating immediately and their peace offerings are worded with “war reparations” from the aggressors. I am looking for opportunities, including picking up gold via related instruments such as recently launched exchange-traded funds and digging in.
Despite Trump’s confidence that oil prices will fall “bigly” after he won, however defined, the US is now compelled to release some of its strategic petroleum reserves. Sanctions, the favourite US weapon before the shooting, seem increasingly bendable. India can now buy oil from Russia, certain tankers carrying oil or gas can sail unmolested with transponders turning “dark” and Iranian oil already at sea is somehow exempt from US sanctions.
Estimates vary wildly, but it is ironic beyond belief that billions of American and allied munitions are being burned through to fight an enemy using cheap drones and missiles, which is funded by selling oil, officially, at higher prices than before.
See also: Oil slips, US stock futures gain on Iran extension
Brace, brace, brace
15th-century Florentine diplomat Niccolo Machiavelli was prescient when he observed: “Wars begin when you will, but do not end when you please”. That is the challenge now, even if Taco Trump may want to consider winding down. He will have to deal not only with the optics of how he declares his win to Americans, especially to his Maga base, which seems less reliant on facts per se. There are a few off-ramps for him. He can foist the job of keeping Hormuz open to the rest of the world, but the looming spectre of a “forever war” will no doubt keep his fellow Republicans on their toes with the midterms looming.
Iranians, having been attacked in the midst of diplomatic negotiations twice, are now akin to cornered animals. Will they be satisfied just twiddling their thumbs after insults and injury? Surely there will be enough carrying a vengeful, eternal grudge to make this a global security issue for all post-Trump.
With that, defence stocks like Singapore Technologies Engineering are no longer just defensive. Likewise, even small caps with long tails that link to defence supply chains, from pain-relief solutions offered by iX Biopharma to satellite communications from Addvalue Technologies, have found solace as the remarkably resilient Straits Times Index held steady at around 5,000 points despite wider sell-offs elsewhere.
It is indeed a relief that our gas sources are diversified, from Australia to Angola, and that we are not overdependent on Qatar. However, just like the rest of the world, energy prices will creep up locally in our calm port in a global storm.
The question is whether the spillover will affect discretionary consumer spending and stocks dependent on it, including, to some extent, travel and hospitality, as lucrative European travellers find Asia’s fuel surcharge too expensive to make the trip.
As an indicator, retail consumer footfall in central malls and F&B outlets in Singapore last week appeared light. Parking was easier. Are we already good Singaporeans, tightening our belts in view of an uncertain world, or continuing in our bubble, bringing kids to regional destinations during school holidays? My social media feeds were mixed.
Hunkering down
At least for now, the slow burn (pun intended) in the Middle East is not changing the investment thesis for some large institutions, which should give local investors some comfort.
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Hongkong Land Holdings, which is in its own revaluation revival since CEO Mike Smith took over in April 2024, has rallied to well over US$8 ($10.26) from US$3, driven by a series of corporate actions and capital recycling initiatives. As its war chest grew by $738 million from the sale of MCL Land last September, it has just made a foray to acquire a 10.8% stake in Suntec REIT from ESR at $1.70 per unit, or $541 million, whose manager is now owned by Gordon and Celine Tang.
Smart money has taken a view that this acquisition, at a discount to Suntec REIT’s net asset value of $2.03, was aligned with “the company’s positive outlook and conviction in Singapore’s prime commercial property market”. The assets in Suntec REIT include one-third stakes in MBFC Towers 1 and 2 and One Raffles Quay, all of which are part of Hongkong Land’s new private real estate fund.
If so, current weakness from the shift in Fed’s rate cut expectations could present opportunities for investors to follow suit not just for Suntec REIT, but the host of commercial property-related REITs, including Keppel REIT, Lendlease Global Commercial REIT and OUE REIT, the latter two trading greater than a discount of more than a third to book, especially with rumours of substantive interest in some of the underlying assets from capital looking for a safer home in Singapore — or property companies like Singapore Land Group and UOL Group.
Similarly, the US$8 billion Marina Bay Sands expansion has been awarded and will commence soon. The main contractor job went to unlisted Woh Hup, who have been behind many iconic projects in Singapore. It will have a trickle-down effect on some of the other listed companies that could be part of the delivery, either through materials or subcontracting. This could include Hong Leong Asia and its associate BRC Asia.
In 1985, when Singapore dug itself out of the recession, it built the MRT. Today, there is no shortage of projects from the airport’s Terminal 5, the mega container port at Tuas, the Great Southern Waterfront, and new housing estates in the north and northeast. As local construction stocks have rallied, they have also continued to deliver rising revenues and earnings, and, in some cases, like Soilbuild Construction, better margins.
This column first flagged the construction theme in 3Q last year and now brokers are scrambling to cover the related stocks or raise targets. UOB Kay Hian’s target price for Huationg Global has now been raised to $1.23, up from 90 cents when we last spotted it last July. Similarly, Wee Hur Holdings almost doubled to 90 cents from 50 cents, although it has pulled back a tad to under 70 cents, while analysts have raised target prices to $1.08.
If the thesis is correct, the current pullback in property, REITs and construction companies with Singapore exposure, driven by dark clouds over the Middle East, may be a timely pause, allowing those who missed the initial boat last year to come on board. Investors digging in here are not constructing a trench, but perhaps building solid foundations for a post-war rebound.
Chew Sutat retired from 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 and he was awarded FOW’s Lifetime Achievement Award.
