Tariff Risk and High Oil Guide Global Equity and Hedging

​Rising tariffs, surging oil prices, and mounting US debt are reshaping market strategies, driving capital to Asia equities, resilient bonds, tactical FX, and gold as investors hedge persistent macro shocks. Learn how to position for opportunity and protection amid these inflationary and trade-driven shifts.

Key Points

• Global equities rose 8% quarter-to-date with the MSCI AC World Index up 5.3% year-to-date and 10.1% year-on-year; the US S&P 500 gained 1.7% year-to-date, Euro STOXX 50 rose 6.1% year-to-date, Nikkei 225 up 8% year-to-date, Hang Seng China Enterprises Index surged 16.7% year-to-date, and Korea’s KOSPI jumped 25.5% year-to-date with target upsides of 7–10%. Renewed tariffs, potential oil above USD 100/bbl, US debt at 99% of GDP, Section 899 tax discretion, and slower 2025 GDP (US 1.3%, Eurozone 0.6%, UK 1.0%) sustain volatility. EM equities may benefit if USD stays weak; Overweight Asia ex-Japan, Korea large-caps, China offshore, US software, banks, Hang Seng Tech, Europe banks, industrials, and broad tech.
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• The 10-year US yield is forecast at 4.00–4.25% in 6–12 months with possible spikes to 4.80–5.00%; 5–7-year maturities are preferred for best risk-adjusted return. Developed Market IG corporate spreads remain tight, CoCos and HY spreads have retraced April’s widening, and US Agency MBS delivered a 4.4% return. EM Local Currency bonds benefit from USD weakness and show inverse correlation to the dollar. China holds about USD 0.8 trillion in US Treasuries, with foreign holdings near 30% overall. Oil shocks add inflation pressure; DM IG credit is tight, Asia USD bonds face tariff and default risks. Favour EM LCY sovereigns, US 5–7-year Treasuries, TIPS, Agency MBS, UK Gilts (FX-unhedged), selected DM HY, EM USD, Asia IG credit.
  
  
• The USD index is forecast to drop to 98 in 3 months and 96 in 12 months; USD/SGD is expected to reach 1.29 then rebound to 1.34, with SGD stable near 1.35 and the Straits Times Index up 2.8% year-to-date. EUR and JPY should benefit most from USD weakness, while MYR and INR remain softer; HKD stays steady at 7.85, supported by excess liquidity. Tariffs, high oil prices, and a US fiscal deficit at 99% of GDP keep USD weak and FX volatile alongside de-dollarisation and EM rate cuts. Prefer EUR (1.16–1.17), JPY (140), gold (18% global reserves), selected EM FX (IDR, MYR), GBP for stability, HKD for arbitrage, and short-term USD hedging.
  
  
• Gold now accounts for 18% of global reserves, up from 11%; Spot is up 42% year-on-year and 27.7% year-to-date with a recent -2.4% pullback, and shows a 24.7% 12-month average return. Support comes from the oil-inflation link and broad commodity strength, with the R/J CRB up 6.4% year-to-date. Safe haven flows persist amid Middle East and Ukraine tensions, oil spikes, declining foreign US bond holdings, US debt concerns, expected -75bps Fed cuts, EM central bank buying, and shrinking USD share. Keep gold core: SPDR Gold Shares, VanEck Gold Miners ETF, physical bullion, plus copper at $9,615, Brent oil up 19.4% MoM, and commodity hedge fund ETFs with 90% downside protection in Q1 2025.

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Global equities remain strong but face tariff, debt, and policy headwinds with Asia and tech favoured

Global Equities Maintain Solid Gains but Face Tariff and Growth Risks
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Global equities are up approximately 8% quarter-to-date and the MSCI AC World Index (USD) is up 5.3% year-to-date and 10.1% year-on-year.
 
The US S&P 500 Index has gained 1.7% year-to-date and 9.3% over the past year, with a forward P/E of 22.7.
 
The Euro STOXX 50 Index rose 6.1% year-to-date but shows a lower trailing P/E of 15.0.
 
Japan’s Nikkei 225 advanced 8.0% year-to-date and 12.3% year-on-year with a forward P/E of 20.0.
 
The Hang Seng China Enterprises Index surged 16.7% year-to-date and 29.7% year-on-year, trading at a forward P/E of 9.8.
 
Korea’s KOSPI Index is up 25.5% year-to-date, supported by foreign net inflows reversing nine months of outflows.
 
Target index levels indicate further potential with the S&P500 at 6,410 (7% upside), Nasdaq 100 at 23,650 (9% upside), Euro Stoxx 50 at 5,550 (7% upside), and Hang Seng at 25,500 (10% upside).
 
Renewed Tariffs, Debt, and Oil Price Uncertainty Keep Equity Volatility Elevated

Early July marks the end of Trump’s 90-day tariff ‘pause’, and renewed tariffs, inflation, and weaker economic data are key risks.
 
West Texas Intermediate oil is expected to stay near USD 65/bbl but could rise significantly above USD 100/bbl in a downside risk scenario.
 
The US federal debt is projected to reach 99% of GDP in 2024 and 118% within a decade.
 
Section 899 allows US policymakers to impose taxes on investments from markets with ‘discriminatory’ taxation, adding uncertainty for multinationals.
 
Global growth is converging in western economies, with GDP projections for 2025 at 1.3% for the US, 0.6% for the Eurozone, and 1.0% for the UK.
 
Policy uncertainty and the breakdown of traditional bond-equity correlations are keeping volatility elevated.
 
Emerging market equities are expected to benefit from widening growth premiums versus developed markets and favourable valuations if the USD stays weak.
 
Asia, US Tech, and Europe Banks Remain Top Equity Picks Amid Macro Uncertainty

Asia ex-Japan equities have been upgraded to Overweight, with a focus on Korea large-cap and China offshore equities for cyclical upside and policy support.
 
Opportunistic ideas include US software and major banks, Korea large-cap equities, China non-financial high-dividend state-owned entities (SOEs), and the Hang Seng Technology Index.
 
US major banks benefit from expected deregulation and a soft landing supports credit quality and loan demand.
 
US software is supported by artificial intelligence developments that enhance software products.
 
Europe banks and industrials are positioned to benefit from infrastructure and defence spending.
 
China non-financial high-dividend SOEs have predominantly domestic exposure and are supported by government stimulus.
 
There is an Overweight on technology in the US, Europe, and China to capture profit resilience and innovation.

Bond Investors Should Balance Duration and Credit Risks With EM Sovereigns, MBS, and TIPS Favoured

US Treasury Yields Likely to Ease but Short-Term Spikes Pose Duration Risk

The 10-year US government bond yield is expected to move lower to 4.00–4.25% in 6–12 months but short-lived spikes to 4.80–5.00% cannot be ruled out.
 
The 5–7-year bond maturity bucket offers the best trade-off between attractive yields and potential price gains while avoiding excessive exposure to inflation or fiscal deficit risks.
 
Yield premiums on Developed Market Investment Grade corporate bonds are tight relative to historical averages, and spreads on CoCos and Developed Market High Yield have retraced much of April’s widening.
 
US Agency MBS bonds delivered a 4.4% return over the holding period and outperformed Developed Market IG government bonds.
 
Emerging Market local currency government bonds perform inversely to the USD index, benefiting from dollar weakness.
 
Foreign holdings of US Treasuries have shifted, with China’s holdings at approximately $0.8 trillion while Euro area countries increased slightly.
 
The US 10-year Treasury yield is currently about 4.39% and has stayed elevated week-on-week, reflecting sustained duration and refinancing risk.
 
High US Debt, Tight Credit Spreads, and Tariff Risks Challenge Bond Stability

A sustained rise in oil prices would raise inflation expectations and limit the Fed’s room to cut rates.
 
The US federal debt is projected to reach 99% of GDP in 2024 and 118% within a decade, increasing fiscal pressure and term premium risk.
 
Foreign holdings of US bonds have fallen to about 30% of outstanding amounts, which could amplify liquidity risks and yield spikes during market stress.
 
Developed Market Investment Grade corporate bonds are downgraded due to tight valuations and vulnerability to widening yield premia.
 
Asia USD bonds face vulnerabilities from US tariff risks and potential defaults.
 
Emerging Market central banks have room to cut policy rates given benign inflation and strong fiscal positions, which supports EM local currency debt.
 
EM LCY debt’s inverse correlation with the USD, indicating USD appreciation would add currency and rate risks to these bonds.
 
Favour EM Local Bonds, 5–7-Year US Treasuries, TIPS, and Agency MBS for Balanced Returns

Emerging Market local currency government bonds have been upgraded to Overweight due to strong real yields, policy easing, and a weaker USD.
 
The 5–7-year maturities in US government bonds provide the best risk-adjusted returns.
 
US Treasury Inflation-Protected Securities (TIPS) remain opportunistically bullish as a hedge against potential inflation surprises.
 
US Agency MBS bonds outperformed with a 4.4% return and offer attractive spread with government backing.
 
UK Gilts (FX-unhedged) are favoured given weak UK economic data and likely BoE rate cuts.
 
Developed Market High Yield and EM USD bonds are core allocations but require careful spread monitoring.
 
Asia IG credit offers high all-in yields, low issuance, and shorter duration with strong balance-sheet quality.

​USD Weakness Creates Tactical FX Opportunities With EUR, JPY, and EM Currencies Attractive vs SGD

USD Weakness Supports EUR and JPY Upside While SGD Remains Stable

The USD index (DXY) is forecast to decline to 98 in 3 months and 96 in 12 months, while USD/SGD is forecast at 1.29 in 3 months and 1.34 in 12 months.
 
The SGD should weaken from the top of its policy band, with the Singapore FTSE Straits Times Index gaining 2.8% year-to-date and the SGD stable near 1.35 versus USD.
 
The EUR and JPY are expected to benefit most from USD weakness, with the JPY at 145 vs USD and the BOJ maintaining its policy rate at 0.50%.
 
The MYR has weakened to 4.25 vs USD, near its 52-week low of 4.09, while the INR is at 86.6 vs USD, slightly weaker than last month’s 86.1.
 
HIBOR has diverged from US rates due to excess HKD liquidity, and HKD remains steady at 7.85 vs USD, highlighting that Singapore’s FX basket regime provides more flexibility.
 
The USD index declining alongside stronger Emerging Market FX performance, indicating that free-floating EM currencies may strengthen more than the SGD.
 
Tariffs, Oil, and Fiscal Pressures Add FX Volatility for SGD and Regional Currencies

Renewed tariffs, inflation, and weaker economic data are key risks that could affect SGD-cross rates.
 
Middle East tensions may push oil prices above USD 100/bbl, impacting Singapore’s trade balance and inflation outlook.
 
The US fiscal deficit is projected at 99% of GDP, sustaining USD weakness that can indirectly strengthen SGD.
 
De-dollarisation shifts trade settlement to local currencies, lifting regional FX liquidity and affecting SGD’s trade-weighted exposure to CNY, MYR, and IDR.
 
Emerging Market local currencies benefit from local rate cuts and stronger fiscal positions, which may allow EM FX to gain relative to SGD.
 
US policy uncertainty remains high and policy swings create volatility clusters in USD/SGD.
 
Most EM Asian central banks are expected to ease policy opportunistically, while Singapore’s policy remains focused on currency strength to manage imported inflation.
 
Prefer EUR, JPY, Select EM FX, and Short-Term USD Hedges Against SGD

EUR/USD is expected at 1.16 in 3 months and 1.17 in 12 months, supported by German fiscal expansion and ECB cuts.
 
JPY is projected to appreciate to 140 in 12 months from 144, providing a stable hedge for SGD holders.
 
Gold represents 18% of global reserves, up from 11% in 2018, offering safe haven benefits for SGD investors through gold-linked assets.
 
Emerging Market local currencies have been upgraded to Overweight due to high real yields and USD weakness, suggesting tactical opportunities in IDR and MYR.
 
GBP shows resilience with fiscal stability and supportive monetary policy, benefiting GBP/SGD if UK spending strengthens sentiment.
 
HIBOR’s decoupling hints at HKD stability with excess liquidity, offering hedging or arbitrage potential against SGD.
 
USD/SGD is forecast to dip to 1.29 in 3 months and rebound to 1.34 in 12 months, indicating near-term hedging potential and medium-term allocation caution.

​Gold’s Strength as a Hedge Intensifies Amid Reserve Accumulation, Inflation Risk, and Geopolitical Stress

Gold’s Rising Reserves and Strong Returns Reinforce Its Role as a Safe Haven

Gold now accounts for an estimated 18% of global reserves, up from 11% in 2018, showing sustained central bank demand.
 
Central bank demand is expected to result in another leg higher in prices after a period of consolidation.
 
Gold’s 12-month average return at 24.7%, the highest among major asset classes.
 
Gold Spot is up 42.0% year-on-year and 27.7% year-to-date, with a recent pullback of -2.4% in the last week, indicating short-term price volatility.
 
A sharp rise in oil prices would raise inflation expectations, and traditional safe-haven and inflation hedges like gold are likely to outperform.
 
The positive relationship between oil shocks and US inflation expectations, reinforcing gold’s role in protecting SGD purchasing power.
 
The R/J CRB Futures Index shows a 6.4% year-to-date gain, and other commodities rose 10% over three months, confirming a supportive backdrop for commodity liquidity and gold prices.
 
Geopolitical Tensions, Oil Prices, and US Debt Drive Continued Gold Demand

Geopolitical tensions, including Middle East and Ukraine-Russia conflicts, continue to sustain a risk premium in gold.
 
A surge in oil prices to above USD 100/bbl could trigger US inflation and limit Fed rate cuts, increasing gold’s appeal as a store of value in SGD terms.
 
Foreign holdings of US bonds have fallen, raising concerns about the USD’s role as a safe asset and elevating gold’s role as a liquidity anchor for SGD wealth.
 
Shifting trade flows and structural debt concerns are slowly eroding the USD’s supremacy, supporting steady gold demand in global portfolios.
 
The Fed is expected to cut rates by 75bps over 12 months while real yields drop, strengthening gold’s appeal for SGD investors.
 
Central banks, especially in EMs, have ramped up gold purchases, solidifying systemic demand.
 
Gold’s share in FX reserves rising while USD dominance shrinks, confirming gold’s role in preserving value for SGD holders during FX volatility.
 
Hold Core Gold Positions with Select Commodity and Hedge Fund Exposure for Stability

Gold and alternative strategies are attractive diversifiers that help mitigate temporary volatility.
 
Gold is seen as a core allocation with another leg higher expected after consolidation, supported by central bank buying, such as the PBoC resuming purchases in 2022 after a three-year pause.
 
Gold’s top risk-adjusted return among major assets with a 24.7% 12-month average, and gold now forms 18% of global reserves, up from 11% in 2018.
 
SPDR Gold Shares and regionally diversified gold mining ETFs like VanEck Gold Miners ETF are suitable for SGD hedging.
 
Gold Spot has shown a 42% annual gain, validating overweight positioning in gold for SGD holders.
 
Other commodities like LME Copper at $9,615 offer moderate gains for balanced exposure, while Brent Oil’s 19.4% one-month surge shows higher volatility than gold.
 
Hedge fund allocations in commodities provided downside protection up to 90% of market weakness in Q1 2025, suggesting commodity-focused hedge fund ETFs can complement a gold core.