- SGD 1.5bn FSDF Top-Up Strengthens Equity Market Liquidity: The enhanced Financial Sector Development Fund reinforces capital market revitalisation efforts, deepens institutional participation and supports sustained valuation re-rating, particularly within small- and mid-cap segments.
- National AI Strategy Drives Structural Earnings Expansion: A coordinated AI push, backed by expanded enterprise grants and national AI missions, positions advanced manufacturing, financial services, connectivity and healthcare sectors for long-term productivity gains.
- SGD 37bn RIE2030 and Startup SG Boost Innovation Pipeline: Increased R&D and growth-stage funding enhance Singapore’s medium-term corporate ecosystem and future IPO pipeline, reinforcing SGX’s attractiveness as a listing hub.
- Defence and Industrial Visibility Remain Strong: Defence spending anchored at ~3% of GDP, with flexibility to rise, supports aerospace, engineering and technology-linked names amid evolving geopolitical risks.
- Earnings Resilience Underpins Valuation Support: Stable domestic fundamentals, deposit growth in banks, easing rate expectations for REITs, and productivity-focused reforms collectively strengthen earnings durability and justify our 15x fair P/E multiple.
Related article: Singapore 2026 market outlook: Policy tailwinds set the stage for equity gains
Singapore equities entered 2026 on a firm footing, supported by improving earnings momentum, strengthening investor participation and a series of deliberate policy initiatives aimed at enhancing market competitiveness. Budget 2026 builds meaningfully on this foundation. Against a backdrop of moderating global growth and a more fragmented geopolitical environment, the government has reinforced its commitment to long-term competitiveness, innovation leadership and capital market development.
Rather than deploying broad-based stimulus, the Budget sharpens structural levers such as accelerating AI adoption, strengthening research intensity and, crucially, deepening liquidity within Singapore’s equity market ecosystem. These measures complement reforms introduced in 2025 and signal sustained policy alignment in support of corporate earnings resilience and valuation re-rating.
In our view, Budget 2026 represents incremental but material reinforcement of the structural bull case for Singapore equities. The key themes are outlined below.
Capital market revitalisation gains further policy firepower
Budget 2026 materially strengthens Singapore’s equity market ecosystem through a SGD 1.5 billion top-up to the Financial Sector Development Fund (FSDF). This builds on the earlier Equity Market Development Programme (EQDP), which has already deployed significant capital to asset managers investing in local equities.
The enhanced FSDF allocation reinforces efforts to deepen liquidity, expand research coverage and incentivise greater institutional participation, particularly within the small- and mid-cap space. It complements SGX reforms, streamlined listing processes, the upcoming SGX-Nasdaq dual-listing bridge and the launch of the SG Next 50 Index.
Together, these initiatives revitalise Singapore’s public equity markets, boost investor confidence, broaden participation, and support sustained valuation re-rating.
AI and innovation: A structural earnings multiplier
Budget 2026 marks a decisive escalation of Singapore’s AI ambitions. The coordinated national AI strategy, coupled with expanded grants under the Enterprise Innovation Scheme and Productivity Support Grant, lowers adoption costs and accelerates enterprise digitalisation.
This has positive implications for:
- Advanced manufacturing and precision engineering like UMS Integration (SGX: 558) and Frencken (SGX: E28)
- Smart systems and digital solutions providers
- Financial institutions leveraging AI for productivity and wealth management
- Healthcare and medtech innovation
Together with the SGD 37 billion RIE2030 commitment, these initiatives extend earnings visibility beyond cyclical recovery into structural expansion. This underpins Singapore’s GDP growth trajectory that can sustainably track the upper end of the 2–3% medium-term range.
Related article: Singapore Semiconductor stocks set to shine on AI, 5G and EQDP Tailwinds
Related article: UMS Integration: Unlocking growth and investment potential
Earnings resilience anchors valuation support
Budget measures targeting income stability, skills upgrading and workforce participation support macro resilience amid moderating global growth.
- Banks benefit from stable deposit growth, wealth activity and healthy asset quality. While remain constructive on all of them, DBS (SGX: D05) remains the top pick, given its strongest fundamentals and highest forward dividend yield of 6.0%.
Related article: DBS: A softer quarter, a resilient year, and a solid long-term story
- S-REITs remain supported by easing interest rate expectations and stable domestic demand. That said, recovery will not be uniform. Sub-sector resilience varies, and balance sheet strength remains crucial. A selective approach with the emphasis on high-quality suburban retail - Frasers Centrepoint Trust (SGX: J69U), prime commercial - CapitaLand Integrated Commercial Trust (SGX: C38U) and industrial - CapitaLand Ascendas REIT (SGX: A17U) and Mapletree Industrial Trust (SGX: ME8U) offers the most compelling risk-reward profile
Related article: S-REITs Outlook 2026: A more constructive year ahead with selective opportunities
- Defence and industrial names enjoy enhanced revenue visibility. Within the STI, Keppel Corp (SGX: BN4) and ST Engineering (SGX: S63) exemplify how supportive macro conditions and sector tailwinds are translating into stronger earnings visibility for 2026.
Related article: Non-bank, non-REIT constituents lead STI earnings growth in 2026
While higher wage thresholds may exert cost pressure on labour-intensive sectors, productivity and AI support initiatives mitigate medium-term margin risk.
Overall, Budget 2026 enhances earnings durability rather than merely stimulating short-term demand, a constructive signal for long-duration equity valuation.
Conclusion: Structural policy alignment strengthens the bull case
Budget 2026 reinforces Singapore’s strategic positioning in a more fragmented global landscape. Rather than relying on short-term stimulus, the government has doubled down on long-term competitiveness, accelerating AI adoption, strengthening research intensity, deepening capital markets and sustaining defence and institutional resilience.
The SGD 1.5 billion FSDF top-up, in particular, underscores a clear and coordinated commitment to revitalising Singapore’s equity market. Together with earlier reforms under the EQDP, SGX listing enhancements and rising ETF participation, policy alignment is now firmly supportive of liquidity expansion, valuation re-rating and broader market participation.
At the same time, earnings visibility remains intact. Banks continue to benefit from deposit growth and wealth activity, S-REITs stand to gain from easing rate expectations, and structural growth sectors are supported by innovation and AI-led productivity gains. These dynamics reinforce our view that Singapore equities offer both cyclical resilience and structural upside.
We therefore maintain our 4.0-star “Very Attractive” rating on Singapore equities and our end-2027 STI target of 5,275, implying 5.1% upside as of today’s closing, alongside a dividend yield around 5%. In our view, Budget 2026 strengthens the foundations of multi-year equity market revitalisation, supporting sustained gains across Singapore equities.
We continue to recommend positioning through the Amova Singapore Dividend Equity SGD Fund, the Amova Singapore STI ETF (SGX: G3B), and the LionGlobal Singapore Trust Fund for broader exposure.
Declaration:
For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
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