Market sell-off over Greenland shows Trump’s unpredictable ways can overturn positive 2026 outlook

SINGAPORE – The Jan 20 rout of US assets is hard evidence that US President Donald Trump’s unconventional ways will remain the foremost risk investors and policymakers worldwide have to navigate for years to come.

Analysts fear that if the sell-off persists, it could derail the artificial intelligence (AI) rally and hurt the future flow of AI-related investments and exports from Asia that had been a major pillar supporting economic growth in the region in 2025.

The Monetary Authority of Singapore in its last macroeconomic review in October 2025 counted an abrupt correction in the AI investment boom and the associated exuberance of financial markets as one of the downside risks to Singapore and the global economic growth outlook.

US stocks, bonds and the US dollar had their worst day in months as Mr Trump threatened to turn a diplomatic row over control of Greenland – an ice-covered island hugging the Arctic Circle – with America’s closest allies into a full-scale trade war.

Mr Trump insists his country must acquire Greenland for national security reasons, citing what he perceives as threats from China and Russia. He denies that the island’s natural resources have anything to do with his desire.

The US stock benchmark S&P 500 dropped 2 per cent, erasing its 2026 gains; long-term US Treasury yields hit a four-month high; and the US dollar saw its worst two-day run in about a month.

Gold came out as the only go-to haven, rising to a record at above US$4,800 an ounce.

Going by the average return of major exchange-traded funds tracking US stocks, treasuries, corporate bonds and Bitcoin, Jan 20 marked the worst session since April 2025, when Mr Trump unveiled his trade policy with harsh tariffs that threatened to roil global supply chains, according to Bloomberg News.

The US sell-off will likely spread to other markets as investors and policymakers assess the potential damage to the global economy if US-Europe tensions continue to escalate.

Singapore’s Straits Times Index ended 0.4 per cent lower on Jan 21. Japan’s Nikkei 225 also lost 0.4 per cent, but other key regional indexes rose.

The re-emergence of the so-called “Sell America” trade followed Mr Trump’s Jan 17 threat of a 10 percentage-point tariff increase, effective Feb 1, on imports from eight European countries – Germany, Britain, France, the Netherlands, Sweden, Denmark, Finland and Norway – seen as opposing his plans to acquire Greenland.

The move would raise the tariff rate to 20 per cent for Britain and 25 per cent for the others, said German investment manager Allianz Global Investors (AllianzGI).

Mr Trump added that if the US failed to acquire Greenland by June, the tariffs would rise by another 15 percentage points.

Mr Christian Schulz, AllianzGI’s chief economist, said: “President Trump’s Greenland-linked tariffs could risk a rapid escalation into a global trade conflict, and financial markets will be a key signal of whether the confrontation fizzles quickly or spirals into a destabilising economic shock.”

After going into a tailspin in April 2025, investors worldwide learnt to contain their responses to Mr Trump’s unconventional rhetoric, whether on geopolitics or trade. As the US President de-escalated trade tensions, lowering tariffs from levels he had announced in April, economic growth surged and financial markets boomed.

Markets even remained resilient to shocking events at the start of 2026, when the president of a sovereign nation was captured by the US military, the US Department of Justice opened a criminal investigation against the US central bank, and Mr Trump threatened to bomb Iran and impose a 25 per cent tariff on countries buying Russian oil, risking a trade truce with China.

In fact, growth forecasts by private economists and multilateral global agencies, such as the International Monetary Fund, pointed to another year of decent global growth in 2026, even if a tad slower than in 2025. 

Indeed, the risk of European retaliation is high.

Denmark has shown no willingness to cede Greenland, despite reports of a proposed US acquisition fund amounting to US$700 billion (S$899 billion). European leaders have already invested significant political capital in supporting Denmark. Polls show public opinion across Europe is also likely to be far less tolerant of concessions than in 2025.

Mr Schulz said the European Union and Britain could respond with retaliatory tariffs, with the possible activation of a €93 billion (S$140 billion) tariff package from Feb 6. The EU could also deploy its Anti-Coercion Instrument, designed precisely for such situations, allowing for restrictions on market access for US services firms operating in Europe.

Analysts said the negative wealth effect of a reversal of the AI rally in the US market meltdown will not be contained within the US.

US Federal Reserve data for 2025 showed that foreign investors, including institutional and retail investors from Asia, owned about 30 per cent of the US$60 trillion US capital market.

Even before the Jan 20 rout in the US, some analysts had recorded concerns related to the so-called AI bubble.

In an interview with The Straits Times last week, Ms Janet Henry, global chief economist at HSBC, said: “If an AI bubble were to pop, it would have enormous ramifications globally.”

Companies around the world, led by the US, are investing heavily in AI technology infrastructure, the constituents of which are driving much of world trade growth – notably from Asian exporters.

The current focus is understandably on the US, given the concentration of tech companies in financial markets and the role they continue to play in driving investment, global exports and, more recently, corporate debt issuance.

Ms Henry said: “But US tech stocks are widely held in pension and mutual funds globally, while Asian AI stocks, commodity prices for products like copper, which are used for data centres, et cetera, and many other related parts of the AI ecosystem have also seen gains.

“In much of the world, an AI bubble crash would see some declines in equity market values and varying degrees of negative wealth effects for consumer spending.”