Straits Times Index dipped to September 2024 lows – What’s ahead?

Straits Times Index (STI) falls close to 15% over the past two weeks

In just two weeks, the STI has tumbled from a record high to its lowest level since September 2024, which marks a near 15% correction. Risk-off sentiments are gripping global markets as market expectations are recalibrated in response to Trump’s trade tariffs, with traders pricing in heightened recession risks and downward revisions to global growth and corporate earnings. The STI’s reputation as a defensive index in the region has offered limited protection amid the broader market fallout.

As we know, the US has implemented a 10% reciprocal tariff on Singapore—modest compared to regional peers, but the indirect consequences could be far more significant. Being a small and open economy, Singapore’s trade-to-gross domestic product (GDP) ratio is among the highest in the world (3x), which leaves the economy highly sensitive to disruptions in global trade. Any prolonged trade disruptions among major global economies may lead to a sharper decline in global trade activities, with cascading spillover effects on domestic investment, labour conditions, consumer consumption and business confidence.

Risks to growth likely to drag on for longer

We do not have to look far to see the impact tariffs can have on Singapore. During the US-China trade war, Singapore’s non-oil domestic exports (NODX) fell by 9.2% in 2019, reversing sharply from a 4.2% gain in 2018. GDP growth slowed to just 0.7% — one of the weakest performances since the Global Financial Crisis. This time round, US tariffs are broader in scope, which means that the trade bypasses that offered some cushion in 2018 may no longer be as effective. Reciprocal tariffs are also exorbitantly higher for many countries, raising the risk of a greater hit to global trade activities.

Given President Trump’s transactional approach to trade—emphasising what each trading partner can bring to the table for the US—small, open economies like Singapore appear particularly vulnerable with limited room for negotiations. Ahead, we see a narrow path to resolution for the ongoing tariff gridlock between the US and China as well. Given the current tone from both sides, the likelihood of further tit-for-tat actions seems to outweigh the chances of meaningful talks for now. Even if negotiations resume in the future, reaching a consensus may prove difficult, suggesting that trade tensions could persist for an extended period.

Heavy concentration to banking sector serves as headwinds as well

The STI is undeniably sensitive to the performance of the banking sector, which just a few months ago, accounted for over 50% of the index’s weight. The high concentration of banking stocks leaves the index especially sensitive to shifts in US Federal Reserve (Fed) policy. Investors are now pricing in four 25 basis point (bp) rate cuts through 2025, a notably more dovish stance compared to just a month ago.

Any deterioration in growth conditions ahead could also create a more challenging environment for the banks, in terms of weaker loan demand, tighter net interest margins, higher credit risks, and softer wealth management activities.

Singapore Blue Chip Index: Lowest level since September 2024

With the sharp decline in Singapore equities over a short span of two weeks, the prospects of a near-term bounce on the slightest positive headlines cannot be eradicated, especially with technical conditions in deep oversold territory. That said, the recent plunge to a new low since September 2024 threatens a shift in market structure, with any short-term bounce facing significant risks of fading into a lower high. Perhaps greater conviction for buyers may be presented with any potential bullish divergence on its daily relative strength index (RSI) and moving average convergence divergence (MACD), where these indicators form higher lows. As of now, such a divergence has yet to materialise.

DBS: Flirting with bear market territory

DBS has not been spared from the recent market rout, with buyers still attempting to defend the stock's close in bear market territory at the time of writing. Likewise, while there are the prospects of a relief rally on near-term oversold technical conditions, any bounce may remain a corrective one, with one to watch for any lower high formation. Immediate support to watch may be at the 7 April low at the S$36.30 level, with any breakdown likely to unlock fresh selling pressures.