Plate tectonics is a scientific theory that explains how major landforms are created as a result of Earth’s subterranean movements. This includes the source of mountain-building, volcanic activity, ocean trench formation and earthquakes.
As a geographer in school, I was always fascinated by these elements and the spectacular natural features that result in our landscape, especially those outside of Singapore. A particularly memorable school geography trip to the Great Rift Valley in East Africa back in 1989 sparked my lifelong wanderlust.
When I am nicely cocooned at home otherwise, I would find myself pondering at nature’s destructive power when she flexed her might such as the 1883 eruption of Krakatoa near us. The 20 million tonnes of sulphur released into the atmosphere back then caused a volcanic winter which decreased Earth’s temperature by an average of 1.2°C in the five years after.
Hopefully, this nature-induced cooling will not be the panacea required to save our climate in this generation as nations stray from our net-zero commitments post-Covid. It will come at a cost. For instance, the 2011 Tohoku earthquake and tsunami cost over 20,000 lives, itself a fraction of the 230,000 estimated cost to humanity from the Boxing Day 2004 tsunami across the Indian Ocean. Smaller eruptions from time to time across the likes of Bali and Iceland, meanwhile, affect air traffic and strand tourists.
During my recent trip to Japan, I received many messages asking if I was safe from friends concerned there was a small earthquake near Fukushima followed by another quake in Taiwan registering 7.5 magnitude on the Richter scale. Basking in my proven bullishness towards Japan’s economy and market, my flippant answer was that we were in Kyushu, far enough from the quake’s epicentre in the north to brush away tsunami warnings. In hindsight, I was a tad too sanguine. Despite attempts by Man to conquer nature, the old saying “Man proposes, God disposes” holds. The day after we were back in safe sunny Singapore, there was a 5.0-magnitude shake in Miyazaki — where I had a splendid lunch of wagyu teppanyaki just a few days before.
Coming from Singapore, all these seemed rather remote, even if I once felt my then Shenton Way office tower sway a tad when Indonesia had a big one some years back. We are lucky by geography to be insulated from natural disasters, given how we are far from the edges of contesting underlying geographic plates. Where they shift apart, we have the world’s deepest ocean trench — the Marianas in the Philippines. Where they collide, we have active volcanoes all across the Pacific Rim of Fire from New Zealand to Indonesia to Japan. We also do not have enough fetch (distance of sea to the next open land where wind and waves travel) and are thus protected from hurricanes or typhoons.
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Thus, Singapore is perhaps also nature’s safe and neutral ground, on top of our much hard-earned role of being a gateway between the increasingly polarised Western versus Chinese economic blocs or democratic versus authoritarian regimes. Unfortunately, geopolitics have become more volatile, as seen by Iran’s direct attack on Israel over the weekend in the latest escalation following the attacks by Hamas last October. Since then, freight rates, costs of rerouting and insurance have all spiked and passed on to consumers in a somewhat “normalised” business environment. However, this new normal is shaky which makes it hard for businesses and investors to price.
Unnatural disasters
These “polycrisis” where there are widening, escalating conflicts, have sparked talk of World War III. Simon Tay, chairman of the Singapore Institute of International Affairs, notes in a March 28 op-ed, that of late, such chatter has come from business leaders and investors including Elon Musk and Ray Dalio, not only from a belligerent Russian President Putin’s warning to French President Macron’s comment about sending Nato troops to Ukraine. Interestingly, Tay’s latest book Enigmas covers the “Laju incident” in 1974 when four armed terrorists with the Japanese Red Army (communists) and Popular Front for the Liberation of Palestine attacked the Shell oil refinery on Pulau Bukom. Half a century on, these issues are back.
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Shaky physical plates create natural disasters but shifting geopolitical plates have as much impact on businesses and risks. Open spaces are created by the vacuum left behind by the US conserving resources under more isolationist policies of Donald Trump as in the case of Nato and Afghanistan. Much like ocean trench formation in physical geography, the pulling apart of the North American Plate from the Eurasian Plate created the 16,000km-long Mid-Atlantic Ridge which emerges in Iceland — seen vividly with molten lava spilling out above ground earlier this year.
With the perceived weakness of the West since the unchecked annexation of Crimea and Donbas in 2014, Russia launched its full invasion of Ukraine in 2022, triggering surging energy and commodity prices, which have been deemed normalised by markets, businesses and consumers.
More pressing (if you pardon the pun) is where tectonic plates collide as the situation can be explosive. Earthquakes and volcanic eruptions have massive consequences, especially if they occur in huge economic or population centres. Many have heard of the San Andreas Fault in the US that shakes from time to time near Los Angeles. Imagine if a big one hits California, which on its own is the fifth largest economy in the world behind Germany, and ahead of India and the UK. Another lesser-known fault line is the one on Jersey that caused the Statue of Liberty to wobble in early April. Compared to the 2023 quake in Turkey which took a horrific toll on some 20,000 lives, the potential economic cost and impact on markets would be much larger.
Perhaps, that is why Taiwan Semiconductor Manufacturing Co (TSMC) is taking the US$6.6 billion ($9 billion) grant by the Biden Administration to build its third site in Phoenix, Arizona, and is investing US$65 billion, which is the largest foreign direct investment, for a greenfield project. The 7.5-magnitude earthquake in Taiwan in April did not affect TSMC’s production significantly but the increased polarisation between the East and West and their respective industrialisation policies have created US jobs as well as opportunities to supply chips for Apple to Nvidia. Friend-shoring too has created opportunities and benefits for friends in Asean, including Malaysia, far from the uncertain “hotspots” across the Taiwan Straits or Little Rocket Man’s North Korea.
If AEM Holdings AWX did not have its recent inventory accounting issues, its stock too would have benefitted from the improved results reported by non-Chinese chip players in design, production and testing. A few of our local tech plays like Aztech Global 8AZ and Venture Corp have had better fortunes, rising above $1 and $14.50 respectively as beneficiaries of this trend.
They may be smaller companies and command more compelling valuations than the big global tech companies that they serve. However, they are less likely to be caught in the line of fire and less at risk of a major political shift or economic war alongside shifting geopolitical plates. If Apple catches a cold from Chinese preferences or TikTok gets banned in the US, some adjustments may be required as supply chains rewire. However, large US or Chinese companies will take a direct hit in these economic earthquakes, especially if there is a large customer concentration from a single market. Investors should dive deeper to understand the risks but is less likely to be fatal if the investment is diversified.
Despite Asean being a manufacturing base that is generally accessible and acceptable to companies originating from both the US and China, and Singapore’s critical neutrality in its financial centre, things are less clear-cut when it comes to consumer-facing businesses. Across the Middle East and in Muslim-dominant parts of Asean, US brands including Starbucks and McDonalds have suffered from boycotts as a proxy protest against US support for Israel versus the Palestinians. This has played out previously with Chinese consumers boycotting Japanese goods and travel amid waves of rising nationalism or shutting out K-pop, K-drama and Samsung over the US deployment of the Thaad missiles on the Korean peninsula some years back.
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Sadly, the West, while citing fair play and free competition, is prone to emotional displays of economic nationalism, especially as the political circus in Washington gets livelier with the Biden-Trump rematch taking place in November. Instead of just Huawei chips, the cyber risk facing Americans comes from the nefarious TikTok infecting their home WiFi networks, according to US lawmaker Richard Hudson as he grilled ByteDance CEO Chew Shou Zi.
Steady dividends and reasonable valuations
I received a late-night text from an ex-boss, who is a successful investment and wealth professional, asking if he was “seeing things” and if we should be concerned about Israel vs Iran; China vs Philippines and an “internally distracted US in an election year” that “can’t get their act together to even support Ukraine”. As the plates shift, he said others are “positioning to take advantage” with “ensuing chaos not good for financial markets”. I flippantly replied: “War is good for markets.”
There has been precedent of markets rallying once the shooting starts — just look at the 1991 Gulf War, or more recently, Russia-Ukraine, which after two years, have been deemed “normalised”. Yes, there are gold, oil, resources and defence stocks — like steady-as-it-goes ST Engineering — or even Bitcoin, if it is useful as digital gold when Armageddon breaks out.
However, in truth, we have choices. Stash cash (or gold bars) under a mattress is one risk-free option although not entirely risk-free given how burglars might strike or how inflation will erode their value over time. After all, this is a world where natural disasters can happen anytime anywhere and one cannot hole up in a bunker forever.
Geographically, our little red dot exhibits the characteristics of our market: Safe, boring and with few explosions and earthquakes, not quite as exciting as the boom and busts of markets in China and Hong Kong, the Nasdaq, the S&P with its parabolic peak in 2021 to its collapse in 2022 and resurgence in 2024, or the wild swings of crypto. Local and regional opportunities and gems are still here for the picking with far fewer global risks, steady dividends and sensible valuations. Just look at the Straits Times Index. I am staying invested.
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, and he was awarded FOW’s Lifetime Achievement Award. He serves as chairman of the Community Chest Singapore
