Global Market Strategist
Global Market Strategist
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In Brief
- Growth is above trend, buoyed by resilient manufacturing activity and tight labor market conditions.
- Policy credibility reaffirms investors’ confidence, supported by central bank stability, strong fiscal buffers and newly introduced policies.
- Local equities continue to outperform major global benchmarks, healthy and broadening of earnings growth across sectors bolster re-rating.
- Singapore equities complement a broader Asian equity allocation, offering income, earnings resilience, and a stable investment backdrop.
Singapore’s upswing is proving broader and sturdier than expected, led by AI-linked capex, technology manufacturing and export tailwinds, and reinforced by construction momentum and steady financial-sector expansion. With 2Q26 growth revised up and inflation still contained, Monetary Authority of Singapore (MAS) policy credibility and ample fiscal surplus provide buffers against external shocks.
Investment implication: For investors, Singapore equities offer a differentiated Asia allocation: resilient earnings breadth beyond banks, income support from high dividends as cash rates fall, and safe-haven characteristics via SGD stability, and the upside from ongoing market reforms.
Tech capex and export tailwinds underpin growth momentum
Singapore’s growth momentum has surprised to the upside, with activity supported by AI-linked capex and a resilient manufacturing backdrop. Singapore's GDP growth rose to 5.9% year-over-year in 2Q26, an upward revision from the advanced estimates. Domestic growth is supported by multiple pillars across manufacturing, services and construction, technology-related manufacturing and export activity remain key drivers of the current expansion. Looking ahead, global AI-related investment is expected to continue buoying Singapore’s technology-related sectors, while the construction sector should benefit from a sizeable pipeline of public and private projects. The financial sector is also expected to expand steadily, underpinned by strong credit growth. This is further supported by low unemployment rate, high savings rate and government policies that remain supportive for private consumers.
As a result of the above-trend growth outcomes in 1H26, the positive output gap widened but is set to remain stable in the coming quarters. GDP growth is likely to slow from the 6.1% year-over-year average growth in 1H26 to a projected rate of 4.0-4.5% year-over-yearin 2H26, due to a moderation in the explosive AI-boom at the start of the year, lagged impact of higher commodity prices from the ongoing Middle East conflict and a cooling in domestic sector. Meanwhile, inflation pressures remain contained despite some upward pressure from energy prices. More importantly, core inflation is expected to remain firm on strong growth for the rest of this year but will likely peak in 2Q27 on the fading of base effects from utilities and other business operation costs, which uniquely feeds into the core inflation measure in the case of Singapore.
Singapore’s policy playbook reinforces confidence
At July’s MAS meeting, policymakers reiterated that the economy is forecast to record a firm pace of growth of 4.5%-5.5% in 2026. On the back of the widening of the output gap in 1H26, in July, the MAS responded with a slight increase in the rate of appreciation of the policy band. While growth is projected to moderate in the coming quarters, the still-resilient momentum could suggest further tightening in the policy stance at the October policy meeting. Meanwhile, fiscal policy remains supportive with the government projecting a fiscal surplus of around SGD 8.5billion (1.1% of GDP) for FY2026 which comes in contrast with major developed economies, many of which are running sizeable deficits. While fiscal policy cannot fully offset the impact of global cyclical weakness, Singapore’s fiscal buffers provide an important cushion to sustain domestic consumption and investment.
Separately, wealth management policy changes introduced in August further reinforces investors’ confidence through underscoring the strategic importance of the asset management industry, which is estimated at about 15% of the financial sector’s output by incentivizing key managers to anchor higher-value business activities in Singapore. These measures include tax exemptions for profit-related returns and earnings from managing qualifying local funds which in turn strengthens Singapore’s position as a leading asset management hub.
“SGP”: A confluence of supporting equity drivers
Singapore equities have extended their rally into the third consecutive year, with the Straits Times Index (STI) returning around 25% in USD year-to-date, outperforming major global equity indices (Exhibit 1). While the STI now trades at approximately 18x price-to-earnings ratio, this largely reflects a catch-up with broader developed market valuations. Earnings growth remains healthy across key sectors, providing fundamental support for the re-rating.
The market’s composition also provides a natural buffer against rising rates. Banks comprise more than 50% of market capitalization and can benefit from higher yields through stronger margins, while Singapore’s tilt towards value-oriented, shorter-duration sectors makes it less sensitive than tech-heavy markets to rising long-term yields. The exception, however, is Singapore REITS, although their year-to-date underperformance suggests some of these headwinds may have already been priced in.
S: Stability, safe-haven dynamics and reforms added catalysts
Singapore’s safe-haven appeal has strengthened amid heightened geopolitical uncertainty, supported by institutional credibility and low currency volatility. While the SGD has appreciated only 1.5% against the USD year-to-date, Singapore's strong fiscal position and current account surplus bolster its safe-haven appeal by dampening imported inflation and reducing macro volatility.
These attributes are increasingly being paired with efforts to deepen market liquidity and participation, with the Equity Development Programme (EQDP) providing an additional catalyst. Since the formation of the Equity Market Review Group, market liquidity has doubled, the number of small and mid-caps (SMID) trading more than SGD 1million a day has increased from 40 to 75, and IPO activity has increased significantly. These developments reinforce EQDP as a medium-term market structure story, with potential to broaden investor participation and corporate action.
G: Earnings breadth & quality growth
Singapore’s earnings outlook remains resilient. STI earnings per share (EPS) is projected to grow at 11.7% in 2026 according to estimates, comparing favorably against regional peers. While STI financials remains a key contributor, the earnings story increasingly extends beyond banks. STI industrials and information technology are projected to record a high single-digit EPS growth this year. Singapore’s SMID universe also provides exposure to domestic consumption, real estate, construction and manufacturing, supported by the data-center boom. This breadth reinforces the sustainability of Singapore’s earnings growth.
P: Dividend payout
With Singapore 6-month T-bill rates hovering around 1.7%, down from the 2025 peak of around 3%, lower cash returns are increasing the relative appeal of equities for income-seeing investors. The STI offers a dividend yield of 4.4%, nearly double that of the broader developed market equities, and in line with some of its ASEAN peers (Exhibit 2). Dividends are therefore not just a defensive feature, but a meaningful part of the total return proposition, providing both ballast and driver of returns.
Investment implications
Against a resilient macro backdrop, Singapore equities can complement Asia portfolios that are often structurally tilted towards higher-beta technology exposure. Broadening earnings growth beyond financials, attractive dividend yields, and SGD stability collectively improve the durability and defensiveness of the equity story, while providing portfolio ballast during periods of heightened volatility. While valuations have re-rated, healthy earnings growth and ongoing market reforms including EQDP provide fundamental support and broaden market participation over time. Taken together, Singapore presents a differentiated opportunity set in investors’ Asian equity portfolio allocation.