Navigating 2025 will be a “daunting” prospect no thanks to the unpredictable policies from the new US administration, says PhillipCapital’s head of research Paul Chew in his Jan 3 report.
With notable policies like immigration and tariffs expected to be implemented when US President-elect Donald Trump takes office on Jan 20, Chew sees risks spanning from a trade war to the resurgence of inflation.
“As the US turns more insular, the largest risk will be a global trade war disrupting supply chains and higher import tariffs imposed on Southeast Asian countries,” Chew writes. “We saw higher tariffs from the current Biden administration on Malaysian solar equipment exported into the US. These tariffs could be widened to exert pressure for geopolitical reasons.”
In 1Q2025, inflation is likely to be “much lower” due to base effects from 1Q2024 and thanks to the tapering of the long-cycle shelter inflation. Global interest rates are also expected to continue on the downtrend in 2025. The way Chew sees it, Trump’s policies will have an inflationary impact but “with a lag” while Europe is likely to face the steepest rate cuts.
Themes for 2025
With this in mind, Chew has outlined three themes for 2025, which are corporate restructuring, more interest rate cuts than expected and the re-rating of China risk premiums.
“The restructuring of corporate assets via public offerings or stake sale will be a continuing theme for alpha generation (as in generates excess returns or returns higher than a benchmark),” says Chew, citing examples such as Keppel looking to dispose of its Rigco assets and Thai Beverage (ThaiBev) selling a stake via a trade sale or by conducting a secondary listing for BeerCo.
Other examples include Olam looking to dispose of its stake in Olam Agri or de-merge Olam Food while Singapore Telecommunications (Singtel) may look to partly crystalise the market value of its stakes in Bharti or Intouch. Meanwhile, Singapore Post (SingPost) will aim to complete the disposal of its Australian and property assets, the analyst adds.
In 2025, Chew is expecting to see four rate cuts by the US Federal Reserve (US Fed) instead of the two guided by the Fed in its latest statement.
See also: Sea is DBS’s ‘top pick’ as Shopee set to benefit from live commerce and AI investments
“The Fed’s medium-term interest rate or dot plot projections are as reliable as that scorpion on the frog’s back. In 2024, expectations started with two to three cuts in 2024. When 2Q2024 arrived, this swung to one or no cuts,” Chew writes.
At its September 2024 meeting, the Fed cut its rates by 50 basis points (bps) and guided for four cuts to happen in 2025. In December 2024, however, the Fed cut another 100 bps with dot plots that showed rate cuts dropping to two in 2025.
To this end, Chew believes there will be more rate cuts as inflation will be under pressure from lower gasoline prices, tapering shelter inflation and base effects from 1Q2024. With Trump’s inflationary policies occurring with a long lag, Chew sees REITs to benefit from the cuts.
“Even if rates are unchanged, most REITs have repriced their lower interest rate hedges, removing the pressure for distribution per unit (DPU) growth,” he says.
On China, the analyst says he is not expecting to see a “strong rebound” in the country’s growth as any longer-term solutions by the Chinese government on raising household wealth and incomes remaining unclear. That said, he believes that Chinese valuations may see a re-rating as he believes Trump’s policies will not be as harsh as expected. A re-rating will benefit CapitaLand Investment and China Aviation Oil.
Looking back
The year 2024 was a “memorable” one with the Singapore market up by 16.9%, its highest in 17 years since the all-time high achieved in October 2007.
For more stories about where money flows, click here for Capital Section
However, investors preferring the glass half empty approach could see it as the market doing nothing after 17 years, says Chew. “Including dividends, average returns were around 4.5% per annum (p.a.).”
The finance sector outperformed in 2024 with gains of 34% led by DBS’s 44% surge. Transport-related counters such as Yangzijiang and Sats also saw “massive gains” from improved volumes and higher prices.
REITs, on the other hand, underperformed with a 11.8% drop.
Of Chew’s list of four predictions, only two came true - a slowdown in the US and a recovery in asset prices.
“Reviewing our 2024 macro projection, we see that the anticipated softness in the US economy did not materialise; instead, China was the underperformer. The two central demand pillars of the US economy are rising household wealth and huge government spending,” he says.
The Straits Times Index (STI) closed 1.02 points higher or 0.03% up at 3,801.83 points on Jan 3.
