The Trump Effect: Impact on the Straits Times Index (STI)

24 Jan 2025

By Priyanka Sachdeva, Senior Market Analyst for Phillip Nova

The performance of the Straits Times Index (STI), a key indicator of Singapore’s economic health, remains closely linked to global trade conditions, energy market volatility, and currency fluctuations. As these factors continue to evolve, businesses and policymakers must adopt a proactive approach, carefully monitoring developments and adjusting strategies to mitigate risks while seizing emerging opportunities.

On Tuesday morning, caution returned to the STI as investor sentiment reflected concerns following U.S. President Donald Trump’s second-term inauguration. While markets had anticipated immediate policy directives, Trump, in his characteristic unpredictability, deferred providing clarity. This has left investors bracing for heightened uncertainty, particularly in relation to trade policies and energy strategies—both of which could significantly impact emerging markets, including Singapore.

A major point of concern is Trump’s proposal to impose substantial tariffs—potentially up to 60%—on Chinese imports. Given Singapore’s export-driven economy, such protectionist measures pose a direct challenge, with the potential to disrupt global trade flows, slow economic growth, and introduce inflationary pressures in trade-dependent nations. While analysts acknowledge the far-reaching implications, the extent of the actual impact remains uncertain.

Additionally, the new administration’s energy policies, focused on ramping up domestic production and reducing reliance on foreign oil, could influence global crude prices. For Singapore—an economy heavily reliant on oil and natural gas—fluctuations in energy prices have widespread implications, affecting not only the energy sector but also numerous interconnected industries and revenue streams.

The Monetary Authority of Singapore (MAS) had recently eased its monetary policy for the first time since March 2020, responding to slower-than-expected growth and easing inflation. Despite the steady progress in Deflation in 2024, the MAS struggled for an appropriate policy response to the growing strength of the US dollar. This decision comes amid uncertainties surrounding U.S. President Donald Trump’s policies, which could introduce inflationary pressures and affect global trade dynamics. The MAS expects the projected GDP growth momentum to slow down for Singapore in 2025 and some relaxation in the monetary policy seems to be the right step. However, investors should stay wary of the impact of shifts in global trade policies could weigh on the domestic manufacturing and trade-related services sectors.

During Trump’s first term, many multinational corporations relocated operations away from China, benefiting emerging Asian economies. However, the landscape may shift this time around. That said, Trump’s policies could still fuel investor confidence in riskier assets such as equities, potentially supporting the STI index—at least unless inflation rebounds or economic growth slows. Investors should remain cautious, as markets often react by “buying the rumor and selling the news,” with many institutional players capitalising on anticipated events before swiftly booking profits.

As global dynamics continue to shift, vigilance and strategic positioning will be key for investors and businesses navigating the evolving landscape.

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iShares MSCI Asia ex Japan ETF (AAXJ) The AAXJ is currently trading -10.6% adrift of all-time highs seen in February, giving up gains in tandem with an Asia-wide equity sell-off at the time. Given that slightly over 40% of the ETF’s holdings are based in China, the ongoing tumult seen in Chinese equities currently have carried over nearly perfectly in the AAXJ, as Chinese investors take a breather after the stellar gains made over the past year. Looking ahead, Asia – and particularly China, is steaming ahead with its economic recovery. China is widely expected to be one of the best-performing major economies this year, providing a major boost to the outlook for corporate earnings. As the rest of Asia and the world gradually opens up their own economies, AAXJ is likely to again benefit from strong Asian outperformance amidst a strengthening trade outlook.

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