OCBC Investment Research
16 June 2025

Global Markets Rattled by Geopolitical Tensions: Key Equity Insights, Sector Winners, and Top Stock Picks

Market Overview: Geopolitical Shocks Hit Global Equities

Global markets faced a turbulent week as renewed military conflict between Israel and Iran drove investors into safe-haven assets. Major US indices slumped, with the S&P 500 losing 1.13%, the Nasdaq falling 1.30%, and the Dow Jones Industrial Average plunging 1.79%. The Dow ended the week down 1.3%, while the S&P 500 and Nasdaq lost 0.4% and 0.6%, respectively.
Market volatility surged, with the Cboe Volatility Index peaking at 21, as the crisis drove oil prices up by as much as 13%. As Iran is a key global oil producer, concerns intensified over potential disruptions in the Strait of Hormuz, a vital chokepoint for crude shipments. Treasury yields dropped on inflation worries, defense stocks outperformed, while airline and travel stocks were hit hard. Gold hovered near record highs, underlining investors’ risk aversion.
Despite these shocks, analysts suggest that unless the crisis sparks runaway inflation or a global recession, equities could recover, as history shows such geopolitical events often unwind within weeks if economic contagion remains contained.
Looking ahead, the Federal Open Market Committee meeting is in focus, with expectations of an extended interest rate hold. Markets in the US will pause midweek for Juneteenth National Independence Day.

Regional Markets: Europe and Asia React to Oil Spike

Europe:
The Stoxx Europe 600 Index fell 0.89% amid sharp moves in energy and airline stocks due to surging oil prices.
Sectors exposed to stagflation risks led declines as inflation and growth fears mounted.
Asia:
The MSCI Asia Pacific Index shed 1%, led by losses in Japan and Hong Kong.
Key regional drags included TSMC, Alibaba, and Samsung Electronics.
Chinese economic data is under the microscope following government signals of increased fiscal and monetary support, yet private sector demand remains weak.
Singapore Market Statistics:

• Volume: 1,020.0m (-18.1%)
• Turnover: 1,242.6m (+4.8%)
• 52-week range: 3,198.4 – 4,005.2
• Gainers/Losers: 161/360

World Indices:

FX & Commodities:

• USDSGD: 1.2823 (-0.3%)
• USDJPY: 144.07 (-0.4%)
• USDCNY: 7.183 (-0.1%)
• USDHKD: 7.850 (0.0%)
• WTI Crude: USD 72.98/bbl (+7.3%)
• Brent: USD 74.23/bbl (+7.0%)
• Gold: USD 3,432.3/oz (+1.4%)
• Silver: USD 36.30/oz (-0.1%)

SIA Engineering Co Ltd (SIE SP): Leaps and Bounds Ahead

Key Developments:

• New Comprehensive Services Agreements with Singapore Airlines and Scoot drive a substantial 54.7% annual increase in labour revenue.
• Despite a sharp share price rally, the outlook remains positive, supported by a record aircraft backlog and robust Asian MRO (maintenance, repair, and overhaul) demand.
• Fair value estimate raised to SGD 3.50; BUY rating reiterated.

Growth Catalysts:
The International Air Transport Association (IATA) recently reported a record aircraft backlog of 17,000 planes, expected to take 3-5 years to clear.
Continued supply chain delays and shortages in labor and raw materials are keeping production slow, forcing airlines to use older aircraft longer – a trend that benefits MRO service providers.
The MRO market is forecasted to see a 2.7% CAGR over the next decade, with Asia Pacific as the fastest-growing region.
SIAEC derives 70.4% of its FY25 revenue from East Asia and has a strategic partnership with Air India, offering strong exposure to booming Asian aviation markets.
Financial Highlights:

• Share price has surged over 25% since the May 2025 announcement of new service agreements.
• FY25 and FY26 PATMI forecasts were raised by 16.2% and 13.7%, respectively after the deal.
• Terminal growth rate assumption raised by 25bps to 2%.
• WACC reduced from 8.3% to 7.6% due to a lower beta input, further lifting the fair value estimate.

ESG Updates:
Majority independent board (30% women); fully independent audit committee.
Strong safety record with ISO45001 certification and exposure monitoring.
Business ethics practices in place, including whistleblowing and staff ethics training.
Environmental management lags some peers, focusing on energy, water, and waste, with room for improvement in biodiversity conservation.

Nanofilm Technologies International Ltd (NANO SP): Awaiting a Break in the Clouds

Key Takeaways:

• Tariff uncertainty persists; no material direct US exposure but Singapore HQ offers strategic flexibility.
• Share price recovering but not yet at pre-tariff levels, now seen as close to fair value.
• Maintain fair value estimate at SGD 0.595; downgrade rating to HOLD.

Market Conditions:
Tariff landscape remains challenging to quantify, with no clear catalyst for positive re-rating.
Nanofilm’s Singapore HQ provides cross-border optionality for supporting international customers and exports.
Global smartphone shipments grew just 0.2% YoY in 1Q25 (third consecutive quarter of slowing growth).
Apple’s 2QFY25 results beat estimates, but demand remains tepid due to tariff effects.
ESG and Sustainability:

• Nanofilm is investing in hydrogen economy solutions and has improved data collection for granular tracking of sustainability targets.
• Aims to reduce GHG intensity by 40% and wastewater discharge by 80% by 2030. Already exceeded target for renewable energy sourcing in FY23.
• Screened 100% of critical suppliers for sustainability risks.
• Employee training averaged only 14 hours in FY24, below the 2030 target of 40 hours and down from previous years.
• Board and senior management diversity is low (80% male in FY24), with room for improvement.

Bank of China (Hong Kong) (2388 HK): Strong Operating Performance

Performance Highlights:

• 1Q25 revenue, operating profit, and core earnings rose 13%, 14%, and 16% YoY, respectively.
• Results driven by robust net interest income (NII) and non-interest income (non-NII) growth.
• NIM fell 15bps QoQ to 1.55% due to lower HIBOR (average 1-month HIBOR dropped 75bps to 3.89%).
• NII rose 3.4% YoY, but declined 3.1% QoQ. Fee income surged 35% YoY, mainly from brokerage, insurance, and funds distribution. Other non-interest income nearly doubled on FX trading gains.
• Loans grew 1.3% QoQ but were down 1.9% YoY; deposits rose 3.6% QoQ, with CASA mix improving by 2.9ppt to 49.3%.
• Quarterly dividend per share: HKD 0.29. Cost-income ratio declined 1.9ppt YoY to 20.5%.

Asset Quality:
NPL ratio improved by 4bps QoQ to 1.01%. Impairment charges rose 43% YoY due to a low base, but credit cost stayed flat at 32bps.
Hong Kong commercial real estate remains a key risk factor for credit cost.
Valuation and Outlook:

• Estimated 2025 dividend yield close to 6%, outpacing most H-share Chinese banks.
• Share price up 39% YTD, outperforming Hang Seng Index and peers by ~16ppt.
• Stock trades at 0.9x forward P/B, a 20%+ discount to closest peer (Hang Seng Bank), despite a higher expected ROE (11.3% vs. 10.5%).
• Fair value estimate set at HKD 38.00, implying 1.1x forward P/B and 5.5% forward dividend yield.

ESG Updates:
Environmental risk management in lending is strong, with sector-specific credit policies (e.g., mining).
Consumer protection framework trails peers; some investment products may pose high risk for consumers.
Data protection framework is robust, including privacy policy and IT audits.
Business ethics framework leads peers, with whistleblower protection. Corporate governance is average, with recurring related-party transactions, but a fully independent audit committee.
Workforce management is on par with peers, with trainee programs and satisfaction surveys to mitigate hiring/retention risks.

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Conclusion: Navigating Volatility with Sector Leaders

The global market environment remains volatile amid geopolitical uncertainty and inflation risks. However, strategic opportunities persist for select companies with strong fundamentals, regional growth exposure, and robust balance sheets. SIA Engineering, with its unique position in Asian aviation MRO, and Bank of China (Hong Kong), with its resilient earnings and attractive yield, stand out as sector leaders. Nanofilm, while fundamentally sound, faces a wait-and-see period due to external tariff pressures and near-fair valuation.
Investors should remain vigilant and diversified, focusing on fundamentally sound companies with proven resilience and clear growth drivers as global events continue to unfold.