1Q26 Market Review:
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- The Iran war drove up the performance of sectors in defence spending, biofuels and capital markets. Banks managed to maintain gains even in March and outperformed during the quarter with their resilient dividends. REITs were pummelled as interest rate expectations dialled back from two cuts early this year to the possibility of rate hikes. Consumer is another segment of weakness as rising inflation squeezes disposable income.
2Q26 Market Outlook:
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- With more troops being deployed into the region, the risk of US ground forces and a prolonged war remains high. The closure of the Straits of Hormuz is not only driving higher energy prices and inflation, but a risk of a material shutdown in global production due to the unavailability of materials. During the pandemic, vessel availability and lead times were the bottlenecks. The current situation can be worse. There is no supply of feedstock or materials for product manufacture.
- In Singapore, there have already been force majeures at chemical facilities that have impacted multiple industries, including plastics, packaging, medical, auto, food, and fragrance. Since the war began, US equities have been down 4.3%. This is compared with the trough drawdown of around 17% in the last two wars, significantly impacting energy markets - Kuwait and Ukraine. There is a pathway for current oil prices to reach US$200 per barrel.
- The last Middle East conflict that saw a major spike in oil prices was the Kuwait war (2 Aug 1990). Crude oil price jumped from an average of US$15 (Jun 1990) to a peak of US$42 (Oct 1990), a 275% rise. Assuming a similar rise of Brent oil average of US$68 (Jan 2026), it implies a $187 peak. The impact could be worse. Kuwait and Iraq were 7% of the global oil supply that was embargoed. The current estimated impact is 10%. The Kuwait war had the threat that Iraq could also invade Saudi Arabia. This is no different from Iran destroying much of the Gulf oil infrastructure.
- In Singapore, the macro data has been strong, led by semiconductor exports surging 51% in February. Loan growth continues to creep up with a 6.3% increase in February. Loan growth is the fastest in more than four years. Building materials demand is also surging, with January demand for ready-mixed concrete up 47% y-o-y and steel bars 124%. However, tourism is sluggish, with year-to-date arrivals down 0.3% y-o-y. Interestingly, RevPAR has been resilient, rising 5% year-to-date2/26. Singapore is attracting more high-value tourists.
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