SGX needs companies, new listings relevant to global investors for its next phase of growth

[SINGAPORE] US Vice-president JD Vance surprised nobody when he said over the weekend that a peace deal with Iran had not been reached.

While oil prices fell and stocks rallied last week after US President Donald Trump abruptly pulled back from his threat to destroy Iran’s “civilisation”, many market watchers were sceptical that the core strategic interests of the warring parties could be bridged through negotiations alone.

Whatever happens next, investors should probably tread cautiously. Even if hostilities do not immediately resume, the fuel and fertiliser supply disruption that has already taken place may adversely impact global economic activity, inflation and corporate profitability for some time.

More importantly, the Trump administration’s destructive push to reshape the geopolitical landscape is unlikely to stop.

Since returning to the White House in January last year, Trump has imposed tariffs on most of the world, demanded control of Greenland, and nabbed then-president Nicolas Maduro of Venezuela in a night-time raid.

Along with the recent military action in Iran, these moves seem to reflect Trump’s disdain for an orderly rules-based system, and his preference for a global pecking order determined by power and leverage.

Faced with a less certain and more fragmented world, many countries are now stretching their national budgets to support increased defence spending, and to stave off the impact of high oil prices.

Taken together, these various trends – reverse globalisation, rising public sector debt and elevated energy prices – may keep inflation and interest rates higher for longer and pose a persistent headwind for global markets.

Against this backdrop, performance may increasingly depend on companies having solid balance sheets, strong pricing power and investment narratives that are not out of step with big geopolitical currents.

Singapore’s relative strength

Despite its small size, Singapore may cope better than most countries with the economic aspects of the unfolding geopolitical shift – thanks to its relatively strong fiscal position and financial reserves, and its longstanding practice of quickly adapting to global economic trends.

The government said in February that its FY2026 Budget would run an overall fiscal surplus of S$8.5 billion. Last week, it rolled out an additional S$1 billion package of measures to cushion the impact of war in Iran on the local economy.

This included enhanced cost-of-living payouts to 2.4 million Singaporeans; cash relief payments to platform workers, private-hire car drivers and taxi drivers; and increased corporate income tax rebates.

The measures did not, however, include reductions in fuel and diesel duties – to ensure that their prices continue to reflect market realities, and incentivise consumers and businesses to use energy more efficiently.

Separately, Prime Minister Lawrence Wong said last week that Singapore’s defence capabilities are of the utmost importance too.

In particular, the growing use of unmanned systems in conflicts around the world could offer lessons on how Singapore might be able to better defend itself.

“In today’s world, it’s more than just about equipping and transforming the (Singapore Armed Forces), it’s also thinking hard about technology and thinking hard about defence supply chains, and how we can be more resilient as a country,” PM Wong said, according to news reports.

More guns, less butter

With more countries prioritising guns over butter, investor attitudes towards defence stocks have changed. Once considered too controversial by some money managers, the strong performance of these counters has recently led to their inclusion in many more funds.

This growing access to capital could further reinforce the investment stories of these companies, and spur stronger growth across the whole sector, in my view.

One way to efficiently gain exposure to the largest global defence stocks is through an exchange-traded fund (ETF).

The iShares US Aerospace & Defense ETF – which counts GE Aerospace, RTX Corp, Boeing and Lockheed Martin among its holdings – has returned more than 7 per cent since the beginning of the year, and nearly 57 per cent over the past 12 months.

The Select Stoxx Europe Aerospace & Defense ETF – which includes Rolls-Royce, Safran, Airbus and BAE Systems – has returned 2.9 per cent since the beginning of the year, and 34.8 per cent over the past 12 months.

The S&P 500 has returned minus 0.4 per cent since the beginning of the year, and 28.7 per cent over the past 12 months.

Investors with the stomach for significant risk might prefer smaller cap defence stocks associated with attack drones.

Last month, a tiny company called Swarmer – which provides artificial intelligence software that enables a single human operator to deploy hundreds of attack drones at the same time – listed on Nasdaq following an initial public offering (IPO) of three million shares at US$5 each. Early this month, the stock hit a peak of US$66.48.

Swarmer closed on Friday (Apr 10) at US$40.09, putting its market capitalisation at US$513.1 million.

Other fast-growing companies in the drone space include Red Cat and Ondas. The former has returned 100.8 per cent over the past 12 months and has a market cap of US$1.5 billion, while the latter has returned more than 1,021.6 per cent and has a market cap of US$4.3 billion.

Both stocks are among the holdings of the recently created Defiance Drone & Modern Warfare ETF and the Rex Drone ETF. The former has returned 13.5 per cent since the beginning of the year, while the latter has returned 12.9 per cent.

More exciting IPOs needed

Here in Singapore, some analysts see ST Engineering and Addvalue Technologies as beneficiaries of rising defence spending.

ST Engineering has a market cap of S$35.6 billion, and it has achieved a total return of 74.9 per cent over the past year. Addvalue has a market cap of S$327.8 million, and has chalked up a total return of 888.9 per cent.

By comparison, the Straits Times Index (STI) has returned 49.1 per cent over the past year.

Will the Singapore Exchange (SGX) be able to attract more companies that elicit such excitement among investors?

Much of the STI’s strong performance in recent years has been driven by value unlocking initiatives at companies such as DFI Retail Group, Keppel, Hongkong Land, Sembcorp Industries and Singtel, as well as elevated profitability at DBS, OCBC and UOB.

On the other hand, the largest new listings in the local market have not gained the same relevance to many investors. Among the ones that are now constituents of the iEdge Singapore Next 50 Index (SN50), only Centurion Accommodation Reit is currently trading significantly above its IPO price.

The others – NTT DC Reit, UltraGreen.ai and Yangzijiang (YZJ) Maritime – are trading below or only slightly above the price at which they raised funds in conjunction with their listings.

YZJ Maritime’s chairman and chief executive Ren Yuanlin was recently reported to be exploring a listing in Hong Kong. The company clarified earlier this month that it has made no definitive decision to pursue capital market activities there.

The Global Listing Board (GLB) – which will enable companies to simultaneously list in Singapore and on Nasdaq with a single set of offer documents – may raise the stakes when it goes live later this year.

Given the market cap threshold of S$2 billion, companies that avail themselves of this dual-listing bridge are likely to immediately be in the same league as SN50 companies, or even STI companies. If they perform poorly, they may erode rather than enhance the vibrancy of the Singapore market.

To help drive the next phase of the Singapore market’s revival, the GLB should focus on companies with strong fundamentals and globally relevant investment narratives.