Middle East tensions drag stocks lower

Date: June 23, 2025

• STI lost 0.7% at 3,883.43 as tensions mounted over Middle East conflict
• Oil prices spiked up, US stocks end mixed
• US bombed Iraq over the weekend, markets likely to come under pressure
• As expected, the US Fed kept interest rates unchanged; 10.3% chance of July cut
• Singtel’s Optus reaches settlement over alleged sales misconduct, including A$100 million proposed penalty
• Food Empire, Yangzijiang Financial, Centurion led small cap gains in 1H25
• JPMorgan positive on S-REITs amid falling borrowing costs
• Economists slash Singapore growth forecast to 1.7%, with manufacturing expected to shrink: survey

 

Worries over whether US will enter the Israel-Iran conflict weigh on stocks

The Straits Times Index fell for the second successive week, this time by 23 points or about 0.7% to 3,883.43, dragged lower by rising tensions in the Middle East following worries that the US may enter the conflict between Israel and Iran, as well as concerns over a slowing Singapore economy.

Average daily volume amounted to S$1.21b, ranging from a low of S$906m done on Wednesday to a high of S$2.18b traded on Friday.

Wall Street kept a watchful eye on Middle East developments

Stocks fell and the price of oil spiked on Tuesday after a series of posts from President Donald Trump had Wall Street worried again about an escalation in the conflict between Israel and Iran.

WTI crude oil futures jumped 4.3% to US$74.84 a barrel, its highest settlement value since Jan. 22, according to Dow Jones Market Data. Trump warned Monday night that, “Everyone should immediately evacuate Tehran’’.

For the week, the S&P slipped 0.2%. The tech-heavy Nasdaq Composite added 0.2%, while the blue-chip Dow ended flat. This is very likely to change in the week ahead, given that the US bombed Iran on Saturday.

The US has now entered the Middle East conflict

On Saturday, the US bombed Iranian nuclear sites, confirming the market’s fears.

Should Iran retaliate with force, its first steps may be below the level of mining the Strait of Hormuz or attacking Saudi Arabia’s oil facilities.

“Iran will try to take out Iraqi oil production,” said Matt Gertken, chief strategist at research firm BCA in a report in US newspaper Barron’s.

The U.S. and Iran may attempt further negotiations. But once it is clear those efforts are fruitless, “there’s no holds barred,” Gertken said. The possibility of a spiralling Middle East war is likely to keep energy prices high and equity markets off-balance for some time.

As expected, the US Fed kept interest rates unchanged; 10.3% chance of July cut

Federal Reserve officials on Wednesday kept interest rates unchanged but collectively signalled two quarter-point cuts to interest rates by the end of 2025, matching expectations in the market.

Policymakers’ median estimate of where the federal-funds rate target range will be at the end of 2025 is for 3.75% to 4%, according to the latest update to their Summary of Economic Projections (SEP) released Wednesday.

The latest forecast left the median rate estimate unchanged from projections the bank released in March, despite several major shifts in trade policy, a downgrade to the US’s credit rating, and increasing geopolitical risks.

Though the Federal Open Market Committee opted to keep rates steady this week, Fed Gov. Christopher Waller caught the market’s attention on Friday when he said the central bank could cut rates as early as July.

Traders placed a 10.3% chance of such a cut, according to the CME FedWatch Tool.

Singtel’s Optus reaches settlement over alleged sales misconduct, including A$100 million proposed penalty

Optus has reached a settlement with the Australian Competition and Consumer Commission (ACCC) concerning past instances of unconscionable conduct and inappropriate sales practices between Aug 2019 and Jul 2023.

The settlement includes a proposed civil penalty of A$100m along with an Enforceable Undertaking requiring comprehensive reforms to the company’s retail and sales operation.

Maybank reiterated its “buy’’ on Singtel with a 12-month target price of S$4.30, saying there will be limited financial impact with existing provisions.

“From a financial perspective, the A$100m penalty poses minimal risk to Singtel as management has already provisioned for this amount in its FY25 financial accounts, eliminating any surprise earnings impact.’’.

“With Singtel maintaining robust operational performance, the penalty will likely have no effect on dividend policy, strategic capex guidance of S$2.5b for FY26, or the ongoing asset recycling program. The financial impact is effectively a one-time expense that has been appropriately accounted for’’ said Maybank.

Over the week, Singtel’s shares lost S$0.09 or 2.3% at S$3.86.

Maybank positive on SGX, cited structural improvements

In a “buy’’ report on SGX, Maybank said calendar year-to-date (CYTD) average daily volume (ADV) is 20% higher than 2024. “Indeed, April’s S$1.9b ADV was last seen on a sustained basis prior to May 2009. In our view, this is structural.’’ said Maybank.

“US policy uncertainty can continue till at least 2028. This is driving investors towards safe haven markets with policy certainty such as Singapore for diversification. Domestically, capital returns from corporate restructuring are accelerating’’.

“We estimate STI DPS (dividend per share) growth to hit 7% CAGR (compound annual growth rate) 2025-27E vs. 6% in 2015-24. Concurrently, buybacks have increased 76% YoY CY25 YTD. A construction boom is underway, which is driving upgrades to listed construction players as well as spill-over beneficiaries. Plus domestic interest rates are falling sharply (June 6-month T-bills at 2.0%). These drivers favour more flows to equities’’ said Maybank as it raised its target for SGX to S$16.09.

Over the week, SGX’s shares fell S$0.26 or 1.9% to S$13.74.

Food Empire, Yangzijiang Financial, Centurion led small cap gains in 1H25

In an 18 June Market Update, SGX Research reported that Food Empire, Yangzijiang Financial, Centurion Corporation, BRC Asia and Wee Hur Holdings have led the 42 constituents of the FTSE ST Small Cap Index in 1H25, which has generated a 4.9% total return over the period, marginally outpacing the FTSE Asia Pacific Small Cap Index at 2.7%.

SGX Research also said the Index maintained a dividend yield of 6.3% as of the end of May, compared to 2.4% for the FTSE Asia Pacific Small Cap Index.

“The FTSE ST Small Cap Index booked net institutional inflow of S$31 million over the period, with Yangzijiang Financial Holding, Centurion Corporation and Wee Hur Holdings among the five stocks that booked the most net inflow, along with UMS Integration and Geo Energy Resources’’ reported SGX Research.

JPMorgan positive on S-REITs amid falling borrowing costs

JP Morgan last week issued a report saying that Singapore-listed real estate investment trusts (S-REITs) could gain from falling interest rates, particularly those with a domestic focus.

This comes as declines in various interest rates, such as the Singapore Overnight Rate Average (SORA) and treasury bills, have lowered borrowing costs, providing upsides for S-REITs, said JP Morgan.

“We believe this should generate upside for Singapore-focused REITs or stocks with resilient cashflows or leveraged balance sheets,” JPMorgan analysts said.

They pointed to Singapore-focused S-REITs with a larger share of Singapore dollar debt as prime beneficiaries of declines in SORA. With revenue growth, such S-REITs could get distribution per unit (DPU) improvements, the analysts said.

CapitaLand Integrated Commercial Trust, CapitaLand Ascendas REIT, Keppel Data Centre REIT, Frasers Centrepoint Trust were among JPMorgan’s top picks for S-REITs.

Economists slash Singapore growth forecast to 1.7%, with manufacturing expected to shrink: survey

Private-sector economists’ forecasts for Singapore’s full-year 2025 growth and inflation fell sharply in the latest quarterly survey published by the Monetary Authority of Singapore (MAS), as expectations dimmed amid worsening US-China tensions.

“The downgrade in the survey forecasts comes on the back of (US President Donald) Trump’s ‘Liberation Day’ reciprocal tariffs,” said Maybank economist Chua Hak Bin in a report in Business Times.

In the latest quarterly survey of professional forecasters on Wednesday (Jun 18), the median growth forecast fell to 1.7 per cent – dragged down by an anticipated manufacturing contraction – from 2.6 per cent previously.

Inflation expectations also fell: to 0.8% for core inflation, down from 1.5% in the last survey; and 0.9% for headline inflation, down from 1.7%.

But Jonathan Koh, Standard Chartered Bank economist and foreign exchange analyst for Asia, noted that oil prices will be a key factor affecting inflation, due to escalating tensions in the Middle East.

Growth expectations for all sectors worsened. In particular, manufacturing is predicted to shrink 0.3%, in contrast to the 2.9% growth expected in the March survey.

Forecasts fell to 3.3% for finance and insurance, from 4% before; 2.2% for wholesale and retail trade, from 2.7%; and 1.5% for accommodation and food services, from 2%.