The lyrics of The War Song (1984) by The Culture Club, yet another iconic band from my school days, echo in the background as President Donald Trump “delivers what he promised”. On Feb 1, with shock and awe, he launched the long-awaited new chapter of the trade war. He slapped 25% tariffs on Canada and Mexico, accusing them of allowing fentanyl and illegal immigrants to enter the country, respectively. China, meanwhile, got sideswiped with 10%, which is likely an opening gambit given that he had threatened 60% during election hustings.
By labelling the orders as an “emergency” action, Trump was able to move without the approval of Congress - although not that it matters, as far as the recent actions of his bros and him go by.
For one, Elon Musk’s staff are allegedly accessing Treasury and other government data. Those who fear Beijing dare not download DeepSeek, but Apple and Meta Platforms are constantly listening anyway, with or without the trust of a capitalist democracy with enshrined institutional protections. If the rule of law can be set aside, or those who are part of institutional checks and balances either bend the knee, resign or get fired, it is worth pondering if we will repeat what happened in the early 20th century.
Do You Really Want To Hurt Me
To be sure, it was the Colombians who almost took the first tariffs hit when President Gustavo Petro turned back US military planes that were deporting its citizens in handcuffs. A threat of retaliation was dropped as quickly as Trump, via Truth Social, threatened to double tariffs to 50%.
Meanwhile, Canada was forced to hit back with its own 25% tariffs on some C$155 billion ($144.18 billion) of American goods. At the same time, Mexico’s President Claudia Sheinbaum reacted by initiating “Plan B” while denouncing accusations of “an intolerable alliance” with the drug cartels. With this common “friend” in the form of the US, one can only wonder what beholds the economic enemies as perceived by the White House will be.
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With the US out of the World Health Organization and the Paris Accord, China is ironically the only superpower recognising multilateral organisations and globalisation - under President Xi’s worldview and terms, of course. In reaction to the 10%, China promptly declared that a lawsuit would be filed with the World Trade Organization and promised countermeasures.
As the premier of Ottawa in Canada mulled an import ban on American liquor from Republican states, some infuriated Canadian friends of mine suggested that they should just black out the US, which depends on Canada for 61% of crude oil imports in 2024 - and hence a discounted 10% tariff on energy. With nationalism running high, this will impact the upcoming Canadian election and who replaces Justin Trudeau.
It may not be conventional or nuclear war that Boy George was bemoaning about in the Culture Club hit when he said: “Most people are very ignorant politically, and we’re told how glamorous war is.”
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Some US$2 billion ($2.74 billion) worth of manufactured goods cross the borders daily, plus food supplies and energy -an indication of how deeply integrated the economies of Canada, the US and Mexico are. Tit-for-tat tariffs among these neighbours and allies are “mutually assured destruction”, says Christopher Sands, director of the Wilson Center’s Canada Institute.
The growing price of eggs was a popular lament by the Republicans that the policies of Joe Biden and the Democrats have failed the common man. Even with Making America Great Again in full swing, the price of this basic protein is not going to fall soon. Rather, American consumers are facing a whole host of higher costs and inflation might stay high for longer even as the economy weakens and puts jobs at risk. So, even if some manufacturing does shift back to Detroit from Canada, who will buy the cars?
Karma Chameleon
As if there was not enough theatre from the daily White House briefings, on Jan 20, DeepSeek emerged from stealth mode and launched its latest model on the day Trump was sworn in, calling into question the supremacy of the artificial intelligence (AI) lead supposedly held by the US. With indications of better results delivered at much lower costs, the very expensive AI ecosystem, cheered on uniformly by analysts in their January outlooks, was rudely undermined. Nvidia Corp was the main casualty but not the only one. Other semiconductor and energy firms such as Broadcom, Micron and Constellation Energy - the “pickaxe” plays in the AI gold rush - were hurt as well, as investors see how the opensource nature of DeepSeek has seemingly turned the costly “moats” of US tech firms into “puddles” instead.
The US$1 trillion rout shows how the effect of an aged and inflated bull can come crashing as Chew On This has been warning. We were not just being contrarian for its own sake. It is just a reality of speculation on the back of “this time it’s different” unwinding. And we are just at the first stage.
To put Nvidia’s own US$600 billion hit on Jan 27 into perspective, that’s the entire market cap of all Singapore-listed companies. Many banks tried to reassure nervous clients with emergency calls held on Jan 28, and Nvidia rallied 6% back the following day. However, the genie is out of the bottle: investors pricing in Nvidia’s exponential growth at 90% margins are re-evaluating this view, reinforced by Nvidia CEO Jensen Huang’s meeting with Trump, which has raised expectations of further curbs.
While some fund managers declare (and hope) that the DeepSeek shock will not derail Wall Street’s AI-powered rally, Bridgewater founder Ray Dalio called the AI hype a “bubble” in US equities. However, DeepSeek’s entry might, at the least, lead to a healthy rebalancing of the wider market. Ironically, the interesting contrarian indicator in January is the retirement of top Wall Street activist short sellers, including Nate Anderson, the founder of Hindenburg Research. Non-activist shorts like Jim Chanos had already shut his main short-selling hedge fund last year. It is famously hard to call the top of markets. However, when the last bear turns bull, or in this case, gives up, that could be one of the final nails.
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I’ll Tumble 4 Ya
As global markets commence the Year of the Snake with rock and roll from Trump’s daily Truth Social posts augmented by executive orders, we expect US markets, fuelled by expected tax cuts yet to come, will be as volatile as his deal-making. It is starting to play out not long after the inauguration. Fasten your seat belts.
Thanks to DeepSeek, long-suffering Chinese bulls had some ego to celebrate. Alibaba’s Qwen 2.5, released in late January, claimed to perform even better. The Hang Seng Index and the Hang Seng Tech indices broke technical resistances while the overseas Chinese ETF markets rallied in hopes for a Trumpian deal, which may include the sale of TikTok to his bros. Others speculate that e-commerce giant Shein is shifting an expected London listing to the US instead.
Once again, like last October, as Chinese markets open in February after the Lunar New Year, gravity sets in. Based on the relative valuation between US and Chinese tech, I believe that buying Chinese tech on dips and selling on strength is a sensible strategy. Staying nimble as the Snake slithers through geopolitics enabled a 10% -15% rally that has now pulled back.
We got lucky following our plan of buying the Lion-Nomura Japan Active ETF on a dip in late January below $1 and taking a modest profit on a 3.5% month-end pop. The yen, too, started to strengthen as the Bank of Japan raised interest rates yet again. With the rest of the world clearly in Trump’s tariff sights, it pays to be nimble if exposed to exporter stocks or economies.
It’s A Miracle
This volatile world is starting to make boring great again. British, European and even our own Straits Times Index (STI) - without shiny tech stocks and long critiqued for this - have performed more steadily and look defensive as higher risk and speculative capital may find solace in these markets where local and regional stocks are less exposed to the US economy directly.
As big caps, especially the three banks, hold the STI steady, our local market has seen more buyout action lately. These delisting “jackpots”, as Chew On This had previously described, have paid off in two instances. Both SLB Development and Japfa have received offers from their respective controlling shareholders at substantial premiums, almost doubling their true “unaffected” prices a year ago. Insiders in these instances rewarded shareholders for their patience with them as the market had not reflected their value and the cyclical business outlook of these companies changed.
Some, like Great Eastern Holdings , are still awaiting a revised better offer from Oversea Chinese Banking Corp (OCBC) or Suntec REIT, which is waiting for a better offer from Gordon and Celine Tang as they were offered at prices well within their net asset value (NAV) according to the assessment of independent financial advisers. However, there are a host of others talked about with substantial shareholders doing share buybacks that this column has covered before worth looking at.
True, they may not always become jackpots in terms of a substantial premium from an M&A offer. Nonetheless, for investors who hold fast as some of these names change their growth strategy or as they trade well below asset values - be they STI components such as Sembcorp Industries and Keppel or small caps LHN and Micro-Mechanics Holdings - investors stand a good chance of enjoying substantial revaluations amidst the mayhem globally.
I was chuffed to see the combined value of Yangzijiang Shipbuilding (Holdings) and Yangzijiang Financial Holding (YZJFH) now at $3.50, more than twice the original demerger stock price of about $1.50 in 2022. Investors have finally noticed that YZJFH was trading well within its cash per share, even though the company has been doing share buybacks regularly for two years. A 40% rise in the past 12 months to 48 cents still puts it less than half its NAV of an estimated $1.12, for instance. The Trump, Nvidia, crypto and Musk trades are exciting, but I will certainly not put Everything I Own in any or all of these companies when the war drums around the world are beating.
Chew Sutat retired from Singapore Exchange S68 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
