This year's tariffs have caused more turmoil, but market performance has improved? Analysts: 2026 will be the real test | Lianhe Zaobao

As global trade protectionism heats up again, tariffs have become the biggest variable overshadowing market and economic prospects. Although tariff news caused significant fluctuations in financial markets earlier this year, the capital markets quickly recovered. Analysts generally believe that the real test has yet to come, and the lagging effects of tariffs may gradually emerge by 2026, posing downward pressure on Singapore and the regional economy. Tariffs are undoubtedly the hottest term in financial reporting for 2025. In the articles published by Lianhe Zaobao in the first 11 months of this year, over 3,300 mentioned tariffs, surpassing other hot topics such as artificial intelligence (2,635 articles), real estate (1,677 articles), and geopolitics (1,252 articles). Despite the government's cautious assessments of the economic outlook multiple times this year, the macro market has not fallen into a prolonged slump. Taking the Straits Times Index as an example, it has continued to rise since the low in April, repeatedly hitting new highs, and has rebounded nearly 35% from its low, indicating that the market's digestion of short-term shocks is faster than expected. High Base and Lagging Effects Combined, Exports and Manufacturing May Cool Down Looking ahead to 2026, most analysts believe that the negative effects of tariffs will gradually reflect in the real economy. Economists Cai Xueming and Li Shunrong from Malayan Banking Berhad pointed out that due to the strong growth of Singapore's manufacturing sector in 2025 leading to a high base, along with the adverse factors brought by tariffs, growth in manufacturing and trade-related industries may slow down in 2026. UOB analysis indicates that Singapore's GDP growth rate will slow to 2.1% in 2026, as export activities are expected to be weak in the first half of next year. "This is due to the potential repayment effect of early shipments and the lagging impact of U.S. tariffs on our country and major trading partners." However, Cai Xueming and Li Shunrong believe that Singapore has signed free trade agreements with both China and the U.S., allowing the country to access both markets simultaneously. Additionally, although the U.S. may impose additional tariffs on key exports such as semiconductors and pharmaceuticals, these policies lack specific timelines and are likely to receive exemptions. Benefits of Early Shipments Diminishing, Asian Assets Face Downward Risks Sean Duffin, Senior Investment Director of Capital Markets Research at Cambridge Associates, pointed out that as the favorable factors of early shipments driving trade growth gradually dissipate, this poses downward risks to the earnings prospects of Asian assets. The World Trade Organization (WTO) predicts that the growth rate of global merchandise trade volume will slow to only 0.5% in 2026. "Some analysts' expectations for nearly 20% earnings growth for Asian assets next year seem overly optimistic." He is optimistic about small-cap stocks in both the U.S. and non-U.S. developed markets, believing they offer attractive valuations, solid fundamentals, and favorable macro and policy environments Extended Reading Facing electoral pressure, Trump rarely delivers a national speech at the end of the year Silver hits a new high of $65.94, gold prices rise In terms of gold prices, the demand for safe-haven assets driven by Trump's tariffs has led to a significant increase in gold over the past year. Looking ahead to 2026, most analysts remain optimistic about gold. United Overseas Bank points out that the appeal of gold as a safe-haven asset and a means to diversify investment risk remains strong, and the allocation of gold by major exchanges and global central banks has not weakened. Therefore, the bank believes that gold prices could reach $4,300 per ounce in the first quarter and could touch $4,600 in the fourth quarter. ASEAN currencies strengthen, suppressing inflation; attention must be paid to non-tariff barriers United Overseas Bank's research indicates that the ASEAN economy has performed better than expected under the impact of tariffs due to three main factors. The first is the restructuring of regional supply chains and the growth of intra-regional trade; the second is strong exports and a continued trend of de-dollarization, which have boosted the exchange rates of regional currencies; the third is the suppression of risks from imported inflation. However, the research also points out that economies in the region that have not fully integrated into the wave of artificial intelligence and the cycle of electronic product updates will need to catch up in manufacturing and exports by 2026. Although intra-regional trade in ASEAN has strengthened over the past year to counter the impact of U.S. tariffs, some analysts note that the effectiveness of this remains weak. Nomura's research indicates that the ratio of intra-regional trade in ASEAN to total trade still has significant room for improvement compared to about 60% in the EU. Despite the establishment of a free trade area in ASEAN, the widespread existence of non-tariff barriers to trade seems to remain a key obstacle Non-tariff barriers refer to methods of controlling foreign trade beyond tariffs, typically including a series of import and export permits, technical restrictions, and sanitary inspection standards. According to Nomura Research, the level of non-tariff barriers in ASEAN is second only to South Asia globally. "We are skeptical about whether trade growth within the region can offset the impact of protectionism in other areas. While U.S. tariff policies may act as a catalyst, the removal of non-tariff barriers may take time and require political will that some of the larger economies in the region may lack."