America First, and then what?

In this issue:

• Will tariffs trump rate cuts?
• DBS, OCBC and UOB make bank with wealth management fees

Good morning, BT readers. 

America has spoken, and the rest of us will say “hello” to another four years of President Donald Trump. And maybe say “goodbye” to the golden gridlock that has preserved a precarious legislative status quo in the US thus far. 

Most billionaires skipped these pleasantries last Wednesday and headed straight for “cha-ching”. On election day alone, the collective net worth of the world’s 10 richest people surged by a record-breaking US$63.5 billion as the Trump trade ripped through markets. Regardless, those who fly commercial and those on private jets will be united in having to grapple with the question of, “What now?”

What’s happening?

After the outcome of the US elections became clear last week, the US stock market saw its best post-election day in history. Everything from banks to tech and small-cap stocks rallied in anticipation of lower taxes and looser regulation.

In the aftermath, Singapore looked like a “relative safe haven” to shaken investors in this part of the world. Buoyed further by the US Federal Reserve’s latest rate cut, the Straits Times Index (STI) ended last week at a 17-year high. 

“If you look closer at constituents within the STI, about two-thirds of it are real estate trusts, financials, logistics or utilities that have nothing to do with tariffs and would not be subjected to any export regulations,” said Wang Kai, senior equity analyst from Morningstar Research.

Why it matters

But beyond the knee-jerk US equity euphoria, there is disquiet as election uncertainty is replaced by uncertainty about everything else.

The Fed might have cut rates by a quarter point late last week, and it might even cut rates again in December. But after that, its continued dovishness is very much in question now that inflation might rear its head again, thanks to Trump’s promised tax cuts and tariffs.

Some real estate investment trust (Reit) investors in Singapore did not wait around to find out. Fears of a higher-for-longer interest rate environment sent the benchmark iEdge S-Reit Index down 1.3 per cent the day after the US elections. Meanwhile, Reits with exposure to China or Vietnam look particularly vulnerable, analysts noted. 

After the Fed’s December meeting, JPMorgan Chase & Co now reckons that the central bank will slow down to a rate cut every other meeting. Nomura Holdings expects just one cut in 2025, down from four cuts projected pre-election.

Predictions notwithstanding, the Fed itself will have to play it by ear, reacting to new policies when Trump announces them (or posts them on X). Even Fed chair Jerome Powell won’t know what his commute to work will look like in 2026 – his term ends then, and Trump has said that Powell will not be reappointed.

At the same time, Trump’s promised tariffs – 60 per cent on imports from China and 10-20 per cent on goods from everywhere else – present some complicated math of their own.

By OCBC’s sums, if all US trading partners including Asean face 10 per cent tariffs, Singapore’s growth could slow to 2 per cent year on year in 2025. Under tariffs of 20 per cent, the country’s growth could slow to 1 per cent instead.

It won’t be fun and games for American businesses either, despite the “America First” rhetoric. Trump’s proposed changes could see about half of US industries shouldering tariffs averaging 25 per cent to 35 per cent on inbound shipments, according to Morgan Stanley’s economists. 

And then there are the other risks that cannot be quantified as a result of having a capricious man at the helm of the world’s largest economy. During Trump’s first term, his administration’s turnover rate was 92 per cent, a presidential record of dubious distinction. 

The Trump trade might benefit certain players now, but such fortunes turn on a dime in his world. During his first term, Trump attacked Amazon, supported a Harley-Davidson boycott and tweeted about cancelling an Air Force One order from Boeing.

China’s response remains a wild card, too. It stopped short of producing a stimulus bazooka last Friday, but its finance minister did promise “more forceful” fiscal policy next year.

As trade wars, actual wars and general unease await, the next four years might feel as treacherous as the plains of Mordor would to a hobbit.

If so, some Tolkien might be of comfort:

“I wish it need not have happened in my time,” said Frodo.

“So do I,” said Gandalf, “and so do all who live to see such times. But that is not for them to decide. All we have to decide is what to do with the time that is given us.”

– J R R Tolkien, The Fellowship Of The Ring

The big number: S$3.03 billion

You always hear how it takes money to make money, but Singapore’s banks have an addendum to that adage: other people’s money can make you money, too. 

All three banks reported a triumphant third quarter last week, turbocharged by robust wealth management fee growth.

DBS went first, posting a record-smashing Q3 net profit of S$3.03 billion, as wealth management helped to boost net fee and commission income by 32 per cent.

It marked yet another first by launching a S$3 billion share buyback programme through which it will buy its shares on the open market and cancel them – an unprecedented move for the bank.

Meanwhile, UOB’s Q3 profit rose 16 per cent on the back of record highs in net fee income, driven by growth in wealth management fees. At OCBC, a 10 per cent growth in net fee income also propelled its Q3 profit 9 per cent higher.

Things could get even better for banks with a Trump presidency. The inflationary environment that his policies create could stymie future interest rate cuts. A tighter monetary policy will help DBS’ net interest margins, its chief executive Piyush Gupta said last week. 

In a higher-for-longer rate environment, some fun can still be had. The next time your wealth manager tries to sell you equity-linked notes, ask about high-yield savings accounts instead. 

(Disclosure: I own shares in DBS and OCBC.)

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