STI seen tumbling to 4,300 in worst-case US-Iran war scenario

With the Strait closed but no active escalation, expect a dip toward 4,600 before a choppy recovery.

The Straits Times Index (STI) may fall to the 4,300-level if talks in the US-Iran conflict renew, which will see the defence, utilities, telecommunications, and consumer staples sectors as outperformers.

In a new analysis, DBS said that it sees three scenarios for the STI, with the worst case being the index falling below the 200-day EMA to 4,450 or even 4,300 if “talks break down completely, ceasefire is revoked, US naval blockade tightens, crisis becomes a regional conflict.”

Since the escalation of the war in February, the STI fell to its lowest level at around 4,756.610 on 9 March. It was the same day when US President Donald Trump declared the war was "very complete, pretty much" and claimed Iran's military had been destroyed, and the Strait of Hormuz reopened.

According to the latest developments, Iran says US forces struck an oil tanker and a vessel near the UAE's Fujairah port, plus civilian areas in southern Iran, whilst Trump insists the ceasefire holds.

Across sectors, DBS said defence, utilities, telecommunications, and consumer staples will be the outperformers, whilst underperformers will be broad-based cyclicals.

In a bear case where there is no immediate deal, the indefinite ceasefire continues, and the Strait remains closed, DBS sees a temporary fall below 4,700 towards 4,600 before recovering back into the 4,700 to 5,040 range.

If a deal is reached within the second quarter, the Strait of Hormuz will gradually open in May or June, and normalisation could take months to return to pre-crisis traffic in the Gulf.

DBS said the index “holds above 4700, choppy upward bias to rise above near-term resistance of 5,040 towards the year-end target of 5,250 in the coming months.

“STI has stayed rangebound with near-term support at 4,700 to 4,760 and resistance at 5,000 to 5,040, as investors monitor the unfolding Iran war. This is in line with our expectations. We maintain our STI YE target of 5,250, premised that oil flows gradually resume through the Strait of Hormuz from May/ June,” DBS said.

In a separate report, RHB said it expects Singapore equities to move past Middle East geopolitical concerns, with investors encouraged to focus on pricing power defensives, artificial intelligence (AI) and electronics, fiscal beneficiaries, and liquidity-reform winners, whilst maintaining hedges through high oil-price beneficiaries

DBS said that Singapore equities tend to enter a seasonally weaker period from May to June.

“The STI has declined by an average - 2.35% month on month in May over the past 15 years, with just a 27% chance that May turns out positive. Over the past 2 months, the US-Iran war has somewhat disrupted the seasonal trend,” DBS said.