SINGAPORE – The Middle East conflict has triggered a typical investor’s knee-jerk reaction to war headlines: Sell first and then buy on the dip after prices have fallen in the hope of a rebound. This sort of emotional trading is neither good for your heart nor wallet.
The co-founder of Oaktree Capital Management, US billionaire Howard Marks, believes it is important for investors to avoid emotional decisions amid the conflict in the Middle East as there is too much uncertainty in the markets.
No one can predict the length of the war, its scale or the final outcome. Without understanding the significance of what is happening, there is “nothing sensible that can be done right now”, he says.
He points out that investors often overlook warning signs because of cognitive dissonance. Initially, they resist new information. Then, they abruptly accept it once it is undeniable. This emotional behaviour can hurt portfolios.
On Feb 28, the US and Israel held a joint operation against Iran, leading to the death of its supreme leader, Ayatollah Ali Khamenei, and triggering a chain reaction in global markets.
Brent crude oil prices soared to more than US$100 per barrel from US$70 per barrel as Iran blocked the Strait of Hormuz, one of the world’s busiest oil shipping channels.
The S&P 500 and tech-heavy Nasdaq 100 both tumbled nearly 10 per cent in March, which saw rapid reversals across asset classes.
On April 8, US President Donald Trump agreed to a conditional two-week ceasefire, less than two hours before his deadline for Iran to reopen the Strait of Hormuz or face widespread attacks on its civilian infrastructure.
Mr Kyle Rodda, senior market analyst at Capital.com in Melbourne, Australia, says this is the “grand taco” moment that markets were hoping for, referring to the acronym for “Trump always chickens out”.
“It’s a huge development which could mark a major turning point for the markets,” Mr Rodda says.
Many analysts warn that risk can resurface as quickly as it was unwound if there is no resolution at the end of the two weeks.
ST asks experts for their thoughts on the markets and views on the optimal portfolio.
Mr Samuel Rhee, chairman and group chief investment officer of Endowus, a digital wealth and investment platform, says uncertainty is bad for markets.
“This particular situation adds more uncertainty over normal geopolitical situations because of the unilateral way in which it began and most likely will end, which means the markets are especially panicky and we are seeing a lot of knee-jerk reactions,” says Mr Rhee, adding that trying to predict the future is a futile exercise.
However, studying the past helps us understand the present better and anticipate different possible future scenarios.
Mr Rhee says history is consistent: US equities rose 115 per cent across the two world wars. Research of 40 major geopolitical shocks over 85 years found that the S&P 500 lost just 0.9 per cent on average in the first month, then gained 3.4 per cent over the next six. Markets were higher one year after conflict broke out roughly 70 per cent of the time.
“The pattern holds because markets ultimately respond to earnings, growth and innovation – not geopolitical headlines,” he says.
In most cases, not taking action is almost always a better decision than taking action for the sake of taking action, he adds.
Mr Rhee offers some timeless advice during this time of heightened uncertainty and lack of visibility:
Stay invested and resist panic: The most damaging mistake retail investors make in a crisis is to sell at the wrong time. Missing a market recovery is almost always more expensive than enduring a drawdown. History shows those who stay the course consistently outperform those who react to headlines.
Review your portfolio for concentration risk: As crude oil prices have risen sharply, inflation pressures could re-emerge, keeping interest rates higher for longer. That is a headwind for long-duration bonds and high-multiple growth stocks. Ensure your portfolio is diversified across geographies, asset classes and investment styles. No single theme, however compelling, should dominate.
Seek advice grounded in evidence, not emotion: In volatile markets, the greatest risk is often behavioural. Working with an independent, conflict-free adviser helps you maintain the discipline needed to compound wealth through cycles.
Look at where long-term value is being built: Asia, including Singapore’s equity market, is a case in point. It is worth noting that there has been some success with deliberate policy action in improving company valuations through value-up initiatives in Japan and South Korea. The Monetary Authority of Singapore’s (MAS) Equity Market Development Programme (EQDP) is channelling capital into quality, under-researched local companies.
Short-term global volatility does not diminish this structural opportunity. If anything, it underscores why a diversified portfolio that includes well-governed, attractively valued domestic equities may make sense for long-term investors, Mr Rhee says.
Global conditions will create short-term noise. But for patient, diversified investors, they are also setting the stage for longer-term success.
ST ILLUSTRATION: MANNY FRANCISCO
Mr Hou Wey Fook, chief investment officer at DBS Bank, says Middle East crises historically hit the global economy through crude oil prices.
Prolonged disruption risks stagflation, a situation where prices keep rising and economic activity does not. Brief stand-offs will stabilise risk assets and present attractive buying opportunities.
Stay invested and diversify. The core principle remains steadfast: Hold income-generating assets on one end and secular growth equities on the other.
Beyond technology, energy, healthcare and defence-related themes, focus on stocks related to innovators, disruptors, enablers and adapters.
DBS is overweight on China, Singapore, Indonesia and Taiwan equities.
Mr Hou expects the region to continue to outperform as investors cut exposure to US-based assets and ride on the AI boom in Asia, which has fuelled strong demand for servers, AI chips and cooling systems.
He sees further upside for Japanese equities, favouring sectors that are poised to benefit from Prime Minister Sanae Takaichi’s strategy that focuses on supply chain resilience, economic robustness and technological competitiveness.
Beneficiaries include semiconductors, advanced electronics and robotics.
In contrast, Europe has been downgraded as the region is expected to face headwinds arising from the spike in energy prices.
“Most importantly, your portfolios should hold high-quality securities: investment-grade bonds; best-in-class companies that ride secular trends of AI, longevity, scarcity; and, importantly, the non-correlating asset class of gold,” Mr Hou says.
Persistent geopolitical uncertainty, US fiscal deficits and de-dollarisation – a significant reduction in the use of the US dollar in world trade and financial transactions – will sustain central bank demand for gold.
Should conditions in the Middle East deteriorate and the crisis becomes prolonged, Mr Hou will increase defensive exposures, particularly to high-grade bonds and gold.
He, too, expects Singapore’s stock market to continue benefiting from the Government’s proactive policy initiatives.
Singapore equities remain attractively priced compared to regional peers, he says.
MAS’ EQDP and the planned SGX-Nasdaq dual listing bridge are expected to deepen capital markets participation, boosting both large caps as well as small- and mid-cap companies.
Other initiatives, including MAS’ $30 million Value Unlock Package to improve shareholder value, could see a market re-rating.
Preferred sectors and themes are financials, semiconductors, transport and aerospace, and Singapore real estate investment trusts (S-REITs).
DBS expects a pick-up in acquisition-led growth, particularly among industrial and office REITs.
Mr Christian Mueller-Glissmann, head of asset allocation in Goldman Sachs Research, says that with ongoing geopolitical tensions, it is important for investors to step back and look at what assets and what type of allocation changes can withstand inflation and market shocks.
Over the past 15 years, portfolios have become heavily tilted towards innovation and US tech stocks, which were the biggest drivers of returns. This concentration leaves portfolios more vulnerable to inflation and valuation corrections.
“Our rule of thumb for optimal portfolio construction in the next decade is one-third of assets exposed to innovation, one-third protecting against inflation, and one-third for risk mitigation,” he says.
In the innovation bucket, you have equities exposed to technology and AI, but be more selective as AI disruption will create both winners and losers.
In the inflation bucket, balance growth exposure with real assets such as gold, inflation-linked Treasuries and shorter-duration value stocks like infrastructure companies that can counter inflation risk over the long run.
And in the risk-mitigation bucket, you have bonds, alongside defensive equity styles like low-volatility and quality stocks, safe-haven currencies and select alternatives to smooth portfolio performance during market stress.
The aim is a better balance of innovation, inflation protection and risk mitigation, with focus on resilience in a world of geopolitical uncertainty.
Mr Herald van der Linde, head of equity strategy for Asia-Pacific at HSBC, has upgraded Singapore equities to overweight, which means they are expected to outperform their peers.
He says Singapore equities have enjoyed a strong run over the past two years, reinforcing its defensive appeal within ASEAN.
This is supported by the presence of large and profitable banks, improving shareholder returns and a series of regulatory initiatives aimed at enhancing the attractiveness of the equity market.
“This combination is particularly relevant amid elevated geopolitical uncertainty, especially as sentiment and growth across the rest of the South-east Asia region remain subdued. We upgrade Singapore equities,” the HSBC strategist says.
Underpinning his optimism are the Government’s initiatives to rejuvenate the market, which could help reduce the persistent valuation discount to other markets.
With dividend yield around 5 per cent, Singapore offers one of the most attractive income opportunities in Asia amid a backdrop of moderating interest rates and geopolitical uncertainty.
Beyond traditional sectors, Singapore is strategically positioning itself for future growth drivers. Investments in AI infrastructure, data centres and renewable energy projects are gathering momentum, aligning with its ambitions to become a regional digital capital.
The banking sector continues to lead the market. Credit quality remains robust and improving wealth management flows have sustained fee income.
A key catalyst for Singaporean banks – DBS, UOB and OCBC – over the coming year is more active capital management, including special dividends and share buybacks that should support both returns and valuations.
Property developers also stand to benefit from the Government’s Draft Master Plan 2025, which outlines a new slew of redevelopment projects offering potential upside through asset rejuvenation and land optimisation.
But bear in mind the conflict in the Middle East has altered the outlook for interest rates, posing risks to the rate-sensitive real estate sector.
Consensus forecasts point to corporate earnings growth of averaging 6 per cent in 2026.
The conflict has changed the dynamics for oil-sensitive Asia.
“In the near term, we see heightened volatility across the region, but this is not a structural derailment of the growth story in Asia,” Mr van der Linde says.
“It is sometimes good to take a step back, look through the noise and identify which themes and sectors will continue to unfold, irrespective of the volatile macro backdrop,” he says.
HSBC has identified nine such themes where the next waves of growth will emerge. They are automation, digital finance, energy transition, future consumer, future transport, future cities, demographics, disruptive technology and trade flows.
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