SINGAPORE: Global financial markets will remain under pressure as investors grapple with the wide-reaching implications of sweeping tariffs announced by US President Donald Trump.
Analysts have urged caution, warning that volatility is likely to persist.
“There are still tariff risks on the table and as long as there is a lack of confidence or certainty, there should be continued volatility in the market,” said Morningstar market strategist Kai Wang.
In a move dubbed “Liberation Day”, Trump on Apr 2 announced tariffs that had been more extensive than many had predicted – a baseline 10 per cent tariff on all imports into the US and much higher rates for those singled out as the “worst offenders” of unfair trade practices, including China and the European Union.
The announcement triggered a sharp sell-off across global markets.
US stocks lost nearly US$6 trillion (S$4.5 trillion) last week, the worst meltdown since the pandemic hit in 2020. Asian and European markets followed suit, with benchmark indices plunging deep in the red on Monday (Apr 7).
Tiger Brokers’ market strategist James Ooi expects the market turmoil to persist at least for the week ahead given the uncertainty of how other countries might respond.
China has already retaliated with a 34 per cent tariff on US goods. Others such as Vietnam and India have expressed interest in talks with the US, but it “remains unclear when, or if, any new trade deals will be finalised”, he noted.
“In the meantime, ongoing tariff uncertainty continues to weigh on investor sentiment and leaves markets vulnerable to sharp selloffs,” Mr Ooi said.
Nomura is also of the view that stocks remain “vulnerable despite being oversold”, citing how the full impact of tariffs on the US economy will take weeks – or even months – to filter through earnings reports and economic data.
“Any softening in data will likely only increase market concerns about a US recession (or) stagflation, which will likely further weigh on risk sentiment in general,” a Nomura analyst report said on Monday.
There is also the lingering threat of further tariffs on all US imports of semiconductors and pharmaceuticals, which Nomura said is still under consideration and may come later.
All of this means bad news for Asia’s export-oriented economies, some of whom have been slapped with the highest reciprocal tariffs.
“Such bigger and broader tariffs are clearly risk-negative events for Asian stocks,” said Nomura analysts, recommending a “defensive posture on Asian stocks, unless the US policy course reverses”.
Despite the sharp corrections, analysts cautioned against bargain hunting – at least for now.
Stock prices are “likely to go lower before some stabilisation occurs”, Nomura analysts said. “We believe that once the risks from US slowdown (and) tariffs are largely reflected in Asian equity valuations, we will reach a stage where risk-reward becomes decisively more favourable for Asian equity investors to go on some bargain hunting.
"However, we do not think that we are at that stage yet.”
Still, opportunities may arise when the uncertainty eases, for example in Chinese and Hong Kong markets, said Phillip Securities Research analyst Zane Aw.
Stocks in these markets could still shrug off the tariffs and outperform the region, he said. Chinese policymakers have ample policy flexibility, including monetary tools like reserve requirement cuts and potential fiscal easing to boost domestic consumption.
Morningstar’s Mr Wang recommended focusing on defensive sectors that are more resilient to tariff disruptions, such as utilities and consumer staples. These sectors held up in 2018 when tariffs were announced during Trump's first term.
“I wouldn’t deploy resources haphazardly so we should be very selective,” he said.
Mr Aw said investors should consider firms that have strong balance sheets, low debt levels and consistent cash flows before investing.
To guard against volatility, investors can also reposition their portfolios towards a higher allocation in low-risk assets like gold, said CMC Markets’ director of business development Daphne Tan.
Demand for gold exchange-traded funds has already risen, said Tiger Brokers, with buy volumes exceeding sell volumes by 123 per cent in the year-to-date.
Singapore's key Straits Times Index (STI) fell 7.5 per cent to 3,540.5 on Monday, clawing back some losses after slumping as much as 8.5 per cent at the open.
DBS analysts have revised their year-end STI target to 3,855, down from 4,080, citing continued volatility.
The biggest losers so far include Singapore's big three banks, with DBS tumbling 9.3 per cent to S$39.28, OCBC falling 6.9 per cent to S$15.47 and UOB slipping 6.3 per cent to finish at S$33.23 on Monday.
Financials are under pressure globally due to potential slower growth and compressed net interest margins, said Maybank analyst Thilan Wickramasinghe.
Even with the recent pullback, there has not been a rush to exit local bank stocks, which are typically held by long-term investors for their stability and consistent dividends, said CMC Markets' Ms Tan.
“The recent dip may even present a buying opportunity for some, with valuations becoming more attractive amid ongoing market volatility,” she said.
Outside the financial sector, DBS analysts also favour defensive stocks such as consumer staples and utilities. Their picks include Sheng Siong Group, DFI Retail Group, Singtel and ComfortDelGro.
Real estate investment trusts or REITS have also drawn interest, with their contractual rental income helping the sector stay resilient, said Mr Darren Chan, senior research analyst at Phillip Securities Research.
“With solid operating fundamentals and the growing likelihood of further Fed rate cuts, REITs are poised to outperform in a downturn.”
Mr Wang from Morningstar also noted that locally listed REITS showed resilience back when tariffs were implemented by Trump during his first term and put up a swift recovery in 2019.
Ms Tan said industrial REITs may potentially outperform office, retail, hospitality and healthcare REITs due to strong demand from e-commerce and logistics, stable long-term leases and lower sensitivity to interest rates.
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