AI-Driven Growth and US-China Trade Easing Boost Markets

Capture growth before the next market wave—capitalize on surging AI-driven equities and a rare easing in US-China trade tensions. Position your portfolio now to seize leadership in booming technology sectors, rising Asian markets, and undervalued small caps while mitigating inflation and bond market risks.

Key Points

• US-China trade easing lifted equities, but global markets remain pressured by tariff uncertainty, favoring defensive sectors and creating opportunities in US tech, Asia’s export-driven markets, and undervalued UK and Hong Kong small caps.
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• Bond markets show improving stability with falling yields and tighter spreads, but persistent US inflation and rising credit risks in Vietnam, GCC, and US high-yield bonds call for a focus on short-duration US Treasuries, high-quality European and Asian corporates, and selective Latin American sovereign bonds.
  
  
• The USD/SGD remains stable amid US inflation strength, EUR and AUD gain on growth and commodities, JPY weakens on low yields, CNY depreciates for export competitiveness, and SGD holders should favor USD defensively while seeking tactical opportunities in EUR, AUD, GBP, IDR, and INR.
  
  
• Gold remains a key hedge for SGD investors, supported by 18.5% YTD gains, easing volatility, strong Asian demand, and geopolitical risks, with opportunities in Singapore-listed ETFs like UOB and Nikko AM, as well as SGD-hedged products like GLD and IAU.

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Equity Markets Rebound on Easing Trade Tensions, AI Optimism, and Undervalued Small Caps

US-China Trade Easing and AI Optimism Drive Equity Market Gains

Global equity markets have rebounded on easing trade tensions and AI-driven growth optimism.

• US effective import tariff on China fell from 103% to 39%, reducing inflation pressures and boosting corporate sentiment.
• S&P 500 rebounded by 3.3% after a 12% decline, returning to positive year-to-date performance.
• China’s offshore tech sector surged over 20% YTD, fueled by DeepSeek-driven AI optimism.
• Frontier markets, particularly Vietnam, delivered 8.9% returns, outperforming developed (3.7%) and emerging (8.5%) markets.
• Global small caps remain undervalued at a 20% discount; UK and HK small caps trade near 10x P/E compared to the S&P 500’s 20.5x.
• US GDP growth is expected to be revised up from 0.8% to between 1.3% and 1.5% for 2025, signaling improving economic conditions.

High Tariffs and Policy Uncertainty Create Volatility in Export Markets

Trade policy uncertainty and elevated tariffs are creating volatility in global markets.

• US average import tariffs reached post-WWII highs, pressuring consumer discretionary sectors.
• Vietnam experienced significant export volatility with tariffs initially at 46%, later reduced to 10%.
• China is rerouting 75% of its projected USD108bn export losses through Asian ports and 25% to Europe, with expected USD12bn market share gains in Europe.
• Export sectors most affected include machinery & equipment (USD19.9bn in losses), household appliances (USD9.5bn), textiles (USD9.3bn), and computers & telecom (USD17.7bn).
• Healthcare and financial sectors remain resilient amid ongoing volatility.
• Lower oil prices ease manufacturing and logistics cost pressures, benefiting energy-importing regions.

US Tech, Asian Equities, and Small Caps Offer Strong Growth Potential

Current market dynamics favor investments in US tech, Asian equities, and undervalued small caps.

• US technology, consumer discretionary, and defense sectors benefit from improved market access and a favorable GDP growth outlook.
• Saudi Arabia and the UAE have pledged over USD2trn in US investments over the next decade, supporting long-term demand for US defense and aerospace exports.
• Asian equities, especially Singapore, Vietnam, Malaysia, and Indonesia, are positioned to capture diverted Chinese export volumes.
• Emerging markets offer attractive valuation discounts and widening growth premiums, with supportive currency dynamics.
• Small caps in the UK and HK remain undervalued, trading at significant discounts to historical averages, offering compelling long-term growth opportunities despite post-Brexit trade deficits and currency overvaluation.

  

​Global Bond Markets Show Improved Liquidity but Face Persistent Inflation, Fiscal Pressures, and Credit Risks

Falling Yields and Tighter Spreads Improve Global Bond Market Liquidity

Bond markets show improved liquidity and lower volatility amid falling yields and tightening spreads.

• US 10-year Treasury yields declined from a peak of 4.9% to 4.2%, with implied volatility down nearly 25%, supporting long-duration bond stability.
• European corporate bond spreads tightened by 35bps over the last month, led by high-yield sectors, reflecting improved liquidity and investor risk appetite.
• Chinese government bonds offer stable yields at 2.5% and historically low volatility spreads, maintaining their safe-haven asset status.
• Emerging market hard currency bonds attracted USD 15 billion in inflows YTD, with spread compression exceeding 40bps, indicating improved credit sentiment and reduced risk perception.
• GCC nations, particularly Abu Dhabi and Riyadh, have increased USD-denominated debt issuance, raising potential regional yield spreads and liquidity risks.
• The UAE demonstrated stronger bond market resilience, with the lowest increases in credit default swaps and government yields amid global volatility.

Persistent Inflation and Fiscal Deficits Sustain Pressure on Bonds

High inflation and fiscal deficits continue to weigh heavily on bond market performance.

• US core inflation remains sticky at 3.6%, limiting the Fed’s ability to implement rapid rate cuts and sustaining elevated bond yields.
• While Eurozone inflation is falling faster than expected, the ECB is likely to deliver its first rate cut by Q3 2025, providing a more favorable environment for European sovereign and corporate bonds.
• Vietnam’s government bond yields spiked to 7.1% before retreating to 5.8% amid ongoing currency stabilization efforts, reflecting high volatility and credit risks.
• Fiscal deficits across the GCC remain a major concern, with Saudi Arabia’s Q1 2025 fiscal deficit surpassing USD15 billion, increasing reliance on debt markets and raising sovereign credit risks.
• US corporate default rates have climbed to 3.4%, with energy and real estate sectors facing the highest refinancing pressures, increasing caution around US high-yield bonds.

Short-Duration Treasuries and Investment-Grade Bonds Are Preferred

Investors should focus on safer, short-to-medium duration bonds and high-quality issuers to manage risks in a volatile environment.

• Prioritize short-to-medium duration US Treasuries and investment-grade corporates to mitigate duration risks amid persistent inflation and uncertain Fed rate cuts.
• European and Asian investment-grade corporate bonds offer balanced risk-return profiles, supported by falling Eurozone inflation and attractive valuations.
• Chinese government bonds remain attractive for defensive positioning, offering stable yields at 2.5% with minimal duration and liquidity risks.
• Selective exposure to Latin American sovereign bonds is recommended, supported by resilient fundamentals and attractive spreads.
• Avoid high-yield EM debt, particularly from fiscally stressed regions like the GCC and Vietnam, where fiscal imbalances and rising credit risks present significant challenges.
• Duration risk should be minimized in US fixed income until clearer signals on inflation and rate cuts emerge.

  

Currency Markets Driven by Rate Differentials, Trade Dynamics, and Strategic Diversification Opportunities for SGD Investors

USD, EUR, and AUD Lead Currency Movements Against the SGD

Major currencies show varied performance against the SGD based on monetary policy, inflation expectations, and trade dynamics.

• USD/SGD remains range-bound, supported by MAS’s neutral policy stance and resilient SGD liquidity.
• USD strength is reinforced by sticky core US inflation at 3.6% and delayed Fed rate cuts, maintaining yield differentials attractive for USD assets.
• EUR/SGD climbed 2.1% in April, driven by ECB easing expectations and a rebound in Eurozone PMIs, reflecting improved investor confidence.
• AUD/SGD gained 3.6% on strong commodity prices and hawkish RBA policy, benefiting from resilient economic activity.
• JPY/SGD weakened by 4.8% YTD due to Japan’s persistently low yields and BOJ’s reluctance to tighten policy.
• CNY depreciated 5% YTD, improving Chinese export competitiveness but weakening against the SGD, boosting Singapore's re-export potential.
• GCC currencies remain stable against the SGD due to USD pegs and resilient external balances despite fiscal deficits, supported by USD2trn in planned US investments from Saudi Arabia and the UAE.
• GBP fundamentals remain weak due to a +8.7% real exchange rate appreciation since 2023 and persistent post-Brexit trade deficits, presenting asset purchase opportunities for SGD holders.

Rate Differentials and Policy Divergence Shape Currency Risk Outlook

Interest rate differentials and policy divergence remain the primary drivers of currency allocation strategies.

• USD remains a core defensive allocation, benefiting from its safe-haven status and delayed Fed easing despite inflation pressures.
• EUR offers moderate upside from improving growth differentials and a calibrated ECB easing approach.
• AUD remains attractive due to strong commodity-linked trade balances and RBA’s tightening bias.
• GBP is positioned for opportunistic plays as overvaluation pressures and trade deficits persist, despite long-term correction potential.
• Selective exposure to high-yield currencies like IDR and INR offers attractive carry trades, though elevated volatility and US rate path risks persist.
• Vietnam’s trade surplus with Singapore rose to SGD 18 billion, but FX intervention has increased VND/SGD volatility.

SGD Investors Should Prioritize USD for Stability and Diversify Selectively

SGD holders should maintain USD positions for defensive stability while diversifying selectively into higher-yielding and growth-oriented currencies.

• Maintain core USD allocations, offering yield advantages and portfolio stability.
• Diversify tactically into EUR and AUD for growth and positive trade dynamics.
• GBP remains attractive for long-term value plays amid currency overvaluation corrections.
• High-yield positions in IDR and INR offer carry opportunities but should be balanced against volatility and policy-driven risks.
• CNY remains a tactical currency for trade-driven strength despite deliberate devaluation pressures.

  

​Gold Demand Strengthens Amid Safe-Haven Flows, Inflation Hedges, and Tactical Investment Opportunities for SGD Holders

Gold Demand and Central Bank Buying Drive Strong Year-to-Date Gains

Gold continues to experience strong demand, driven by safe-haven flows and sustained central bank purchases despite shifts in monetary policy and geopolitical dynamics.

• Gold prices have surged 18.5% YTD in SGD terms, driven by heightened financial uncertainty and resilient central bank demand.
• Asia accounts for over 60% of global gold demand, with India and China leading physical purchases amid currency volatility.
• Volatility in gold prices has moderated to 12% from a previous peak of 16%, reflecting strong liquidity and making gold a stable hedge for SGD-based investors.
• Singapore-listed gold ETFs saw net inflows of USD 7.8 billion in the last quarter, with AUM rising by 4.2%, reflecting growing local investor interest.

Geopolitical Tensions and Inflation Expectations Support Gold’s Outlook

Gold remains a critical hedge against geopolitical uncertainty and sustained inflation pressures, despite recent moderation in recession fears.

• Persistent geopolitical tensions, particularly in the Middle East, have maintained a geopolitical risk premium on gold.
• Sticky core inflation across developed markets continues to support investor demand for inflation-hedging assets like gold.
• MAS’s neutral policy stance has capped significant SGD appreciation, amplifying the SGD-denominated returns of USD-priced commodities like gold.
• Global mine supply growth remains constrained at just 1.5%, tightening supply conditions amid robust demand.
• Falling oil prices and a more positive US GDP growth outlook (revised up from 0.8% to 1.3%-1.5%) have eased safe-haven demand in the short term but created tactical entry opportunities for SGD-based investors.

Singapore-Listed and SGD-Hedged ETFs Remain Top Gold Investments

SGD investors should continue to prioritize gold exposure through top-performing ETFs and selectively diversify into other commodities for enhanced returns.

• UOB Gold ETF and Nikko AM Gold ETF delivered over 15% YTD returns in SGD terms, outperforming regional peers.
• SGD-hedged products like SPDR Gold Shares (GLD) and iShares Gold Trust (IAU) remain cost-effective and efficient for currency risk management.
• Physical gold demand remains robust in India and China, supporting continued price resilience despite global uncertainties.
• Industrial metals linked to China’s export diversification efforts offer growth potential, particularly in infrastructure and electronics sectors.
• While gold remains the preferred hedge, selective commodity diversification into energy, such as Brent crude (up 12% YTD), may offer higher short-term gains despite elevated volatility.