What investors can do as stagflation risk mounts amid Mid-East turmoil

By Wong Kon How

An interview with The Straits Times. Below is my interview with their senior correspondent, where I shared my views on the recent Middle East crisis, why precious metals remain under pressure, and the risks and potential of Singapore and regional equities.

1. Are you revising your portfolio allocation because of the tensions in the Middle East?

Since our last interviews on Singapore stocks on 26 Mar 2025 and gold and silver on 25 Nov 2024, today’s situation seems to confirm that we are on the right track with commodities as well as China and Singapore equities. In fact, after the 28 Feb 2026 event, it helped me further refine my views on other types of commodity-related equities beyond precious metals and even oil. Examples include palm oil (as a biodiesel alternative), LNG, LPG, food related commodities, and others as the situation develops.

The key is this: if it’s so uncertain the other side, why try so hard? There’s a greener pasture at home and nearby. I hope to invest more in Singapore equities on any market correction. This Middle East crisis could provide that opportunity. USD/CNY and USD/MYR seem to be holding steady despite a strong USD. Are investors shifting their funds to this region as a flight to quality? As I cash out my USD while it strengthens along this timeline, my goal is to get into quality CNY, SGD, and MYR assets with dividend payouts during these very uncertain times. When I buy SGD, CNY, and MYR shares, I am also effectively buying their respective currencies. I have to choose the currency settlement before entering a trade.

2. US markets did not react too much to the war in Iran. The reaction was sharper when Trump first announced tariffs during his second term. Why?

The ‘Liberation Day’ tariffs announced in April last year were perceived as absolute figures affecting many countries. The immediate concern was the impact on sales to US consumers. As a result, we saw a sharp market correction until President Trump reversed many of the figures and timelines.

Regarding the 28 Feb Middle East tensions, the market’s initial perception was that any supply chain disruption would be short-lived. However, if the conflict were to prolong for weeks or months, we could see a more significant market meltdown.

3. Safe havens like gold and the Japanese yen have not fared especially well over the tensions so far. Why?

Let me explain using this acronym – IIUG.

I = Inflation

I = Interest rates

U = USD

G = Gold, precious metals, or other currencies against the USD

Due to the 28 Feb event, I am expecting inflation numbers to start picking up in the coming weeks and months. When that happens, interest rates should rise. When interest rates rise, the USD becomes more attractive for deposits. When the USD strengthens, gold, as a currency alternative to the USD, should face some pressure, and so should other currency pairs against the USD.

This is why safe havens like gold and the Japanese yen have not fared especially well over the tensions so far.

4. Why gold hasn’t moved since the Iran conflict — and where it could go next?

Refer to my reply to Q3. The real danger is if the conflict is prolonged. Inflation should continue to rise, and so will US interest rates and the USD.

Will there be a situation where, no matter how high US interest rates are, investors are no longer interested in the USD? That is a question for all investors to think about.

Although precious metals seem uneventful for now, they should start to pick up again when the USD begins to decline, regardless of how high US interest rates are. I am not suggesting that this scenario will happen. Stagflation is a situation I hope not to see, but one that I still need to prepare for. Therefore, I remain in a long-term relationship with my precious metals.

Yes, and in a situation where investors lose confidence in the USD, we would likely see a resurgence in the precious metals rally. For the time being, is the USD play because of the anticipation of a higher interest rates.

5. Instead the US dollar has been doing well when I assumed it will fall. Why?

Yes, IIUG explains it. Furthermore, the incoming Fed Chairman is taking a more hawkish stance on controlling inflation, even if growth slows.

6. Fed meeting this week. Many now expect one cut this year, down from two. What is your sense of interest rates in the near term?

This expectation was formed before the 28 Feb event as part of the considerations. A more pragmatic approach is to stay aware of the current situation and be informed about upcoming data such as US CPI, Core CPI, Core PCE, and other indicators. Therefore, near term intertest rates is up.

If the market is expecting only one rate cut in December 2026, that’s still nine months away, which basically tells us that anything can change. I am monitoring the USD, interest rates, and yields very closely. If interest rates rise but the USD falls, US equities could be in a very dicey situation. However, as of now, this relationship seems healthy, with the market anticipating higher interest rates alongside a strong USD trend.

7. One mortgage broker told me rates in Sg will fall. Do you also see that happening?

With higher inflation, US interest rates may rise and the USD may become more attractive. Therefore, in the short to mid-term, the Singapore dollar may weaken. However, in the long term, I still favour the Singapore dollar, as Singapore manages its money supply or money printing responsibly. Again, Will there be a situation where, no matter how high US interest rates are, investors are no longer interested in the USD? That is a question for all investors to think about.

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