Demand for AI continued to drive Singapore’s industrial output in May 2026

• Singapore's manufacturing output rose 13.0% year-on-year (YoY) in May 2026, and 17.7% excluding biomedical manufacturing, though the seasonally adjusted month-on-month (MoM) reading eased by 0.7% (ex-biomedical MoM output rose 3.1%).
• Across industrial output clusters, electronics led the growth at 35.8% YoY, driven by semiconductors (+37.0%) and infocomms & consumer electronics (+59.2%), reflecting sustained AI-related demand.
• Precision engineering expanded 32.2% YoY, with the machinery & systems segment benefiting from higher production of semiconductor equipment.
• Transport engineering (-5.0%), chemicals (-11.5%) and biomedical manufacturing (-24.2%) were the key drags, weighed by softer aerospace maintenance activity, feedstock supply disruptions and lower pharmaceutical output.
• We maintain our 4.0-Star “Very Attractive” rating and STI target of 5,987 by end-2028, and continue to favour exposure to industrials and the AI-linked technology supply chain as the primary earnings growth engine within the Singapore market.

Singapore's manufacturing sector delivered a robust performance in May 2026, with output climbing 13.0% year-on-year (YoY) and 17.7% excluding biomedical manufacturing. The reading extends a run of double-digit YoY growth from the previous month.

The composition of growth matters more than the headline number. Electronics and precision engineering, the two clusters most directly exposed to AI-related capital expenditure, expanded 35.8% and 32.2% YoY respectively, more than offsetting declines in transport engineering, chemicals and biomedical manufacturing.

For Singapore equity investors, this trend reinforces a theme evident in our outlook since the start of the year: the industrial and technology supply chain complex is driving earnings growth, while banks continue to underpin income resilience.

In this article, we provide an update following the May 2026 Index of Industrial Production (IIP) release and break down what the data implies for our constructive positioning on Singapore equities.

Related article: Singapore Outlook 2H26: Yield, growth and revitalisation in one market

Related article: Singapore's May NODX surges to 22-year high: AI integration runs deep, positive view maintained

Related article: Non-bank, non-REIT constituents lead STI earnings growth in 2026

Headline output accelerates, though the pace of expansion has moderated

Total manufacturing output rose 13.0% YoY in May 2026, moderating from April's 16.5% expansion but still comfortably ahead of March's 7.8% pace. Excluding biomedical manufacturing, which continues to act as a drag on the aggregate figure, output growth was even stronger at 17.7% YoY. On a cumulative basis, manufacturing output for the January to May 2026 period is up 10.7% YoY, with the ex-biomedical measure up 15.2%, underscoring the durability of the current upcycle rather than a single-month anomaly.

The seasonally adjusted month-on-month (MoM) reading offers a more tempered picture. Total manufacturing output fell 0.7% MoM in May, a pullback from April's 6.2% gain, while the ex-biomedical measure rose 3.1% MoM, moderating from April's 6.3% increase. This kind of month-to-month volatility is typical of a semiconductor-led cycle, where shipment timing, order fulfilment schedules and inventory adjustments across the electronics supply chain can produce sharp swings even as the underlying YoY trend remains firmly positive.

Table 1: Singapore’s manufacturing performance in 2026

Month	Jan 2026	Feb 2026	Mar 2026	Apr 2026	May 2026	Cumulative (Jan’26 – May’ 26)
Industrial Production (YoY)	9.3	6.8	7.8%	16.5%	13.0%	10.7%
Source: Economic Development Board. Data as of 31 May 2026.

Taken together, the data point to a manufacturing base that is expanding at a high absolute level, even if the sequential pace of acceleration is beginning to normalise from the exceptionally strong prints seen in April.

To put this expansion into context, electronics accounted for most of the headline growth, reflecting its 40.2% weighting in the IIP basket. As a result, any moderation in electronics momentum would materially affect overall industrial production.

Precision engineering, at 15.2% of the basket, added a further layer of breadth to the upcycle, suggesting the AI-related strength is not confined to a single segment but is flowing through the wider semiconductor equipment and components ecosystem.

AI-linked segments lead, traditional segments continue to lag

The divergence across manufacturing clusters was the defining feature of the May 2026 release.

Electronics, which carries the largest weighting in the IIP basket at 40.2%, grew 35.8% YoY, led by the infocomms & consumer electronics segment (+59.2%) and semiconductors (+37.0%). This growth was underpinned by robust AI-related demand, consistent with the broader regional narrative of accelerating hyperscaler capital expenditure on AI infrastructure.

Precision engineering, the third-largest cluster at 15.2% of the basket, grew 32.2% YoY, with the machinery & systems segment recording higher production of semiconductor equipment and the precision modules & components segment seeing increased output of optical instruments and electronic connectors. General manufacturing industries, a smaller 8.7% weighted cluster, grew a more modest 1.8% YoY, led by higher production of structural metal products within the miscellaneous industries segment.

On the other side of the ledger, three clusters detracted from headline growth.

Transport engineering fell 5.0% YoY, as lower aerospace maintenance, repair and overhaul (MRO) activity, reduced work related to oil rigs and offshore platforms, and softer demand for oil and gas field equipment weighed on the segment.

Chemicals declined 11.5% YoY, led by lower production in the petroleum and petrochemicals segments amidst disruptions in feedstock supply.

Biomedical manufacturing was the weakest cluster, contracting 24.2% YoY, as medical technology output fell amidst softer demand for medical devices and pharmaceuticals output contracted on lower biologics production and a shifting mix of active pharmaceutical ingredients. Pharmaceuticals alone fell 41.6% YoY, the sharpest cluster-level decline in the release.

These segments are structurally distinct from the AI-linked electronics and precision engineering clusters and their weakness should not be read as a signal of broader industrial softness; rather, it reflects idiosyncratic supply and demand dynamics specific to each segment.

Table 2: Singapore’s manufacturing output by industry clusters

Industry cluster	Weight	YoY
Electronics	40.2%	+35.8%
Biomedical Manufacturing	11.3%	-24.2%
Chemicals	15.0%	-11.5%
Precision Engineering	15.2%	+32.2%
Transport Engineering	9.6%	-5.0%
General Manufacturing Industries	8.7%	+1.8%
Total Manufacturing	100.0%	+13.0%
Total Manufacturing, excluding Biomedical Manufacturing	88.7%	+17.7%
Source: Economic Development Board. Data as of 31 May 2026.

Singapore’s deepening role in the global AI semiconductor supply chain

The electronics cluster's strength is also consistent with Singapore's deepening role in the global AI semiconductor supply chain. May 2026 Non-Oil Domestic Exports (NODX) surged 38.4% YoY, the fastest pace since December 2003, driven by a near-doubling in electronic exports.

Applied Materials' newly opened Tampines campus and Micron Technology's high-bandwidth memory packaging expansion reinforce these indicators. They also suggest demand for Singapore's electronics and precision engineering sectors should remain supportive into 2H26 and beyond.

Among SGX-listed beneficiaries, UMS Integration (SGX: 558) remains our preferred pick within the semiconductor equipment space, supported by strong 1Q26 results and a 4.4% dividend yield, at valuations that remain reasonable relative to peers.

Related article: Singapore’s semiconductor stocks: Riding the AI-driven upcycle

Related article: UMS Integration: A structural re-rating built on earnings, not optimism

Singapore remains 4.0 stars – Very Attractive, for its yield and growth

The investment case for Singapore rests on a combination of attractive dividend yields and earnings growth that is rare among developed equity markets.

• Banks provide the income anchor: sector-wide dividend yields approaching 5–6%, well-covered by resilient earnings and strong capital generation, with an improving non-interest income trajectory that is increasingly structural rather than cyclical.
• Industrials and the AI technology supply chain provide the growth engine: record backlogs, deepening semiconductor investment, and AI-driven export demand that is showing no sign of peaking.
• Capital market revitalisation is beginning to unlock the third dimension: a broadening of market depth, improved research coverage, and the conditions for a sustained SMID-cap re-rating.

Applying our fair value P/E multiple of 15X to projected 2028E earnings per share of 399.1, we maintain our STI target of 5,987 by end-2028. This implies approximately 14.2% price upside from 3 July 2026, alongside an annual dividend yield of approximately 4.5%. The STI is currently trading at 15.4X FY2026E earnings, with EPS growth expected at 11.9% in 2026E and 9.0% in 2028E. Further upside from this level is driven by earnings growth rather than multiple expansion, grounding the return thesis in fundamentals.

That said, re-rating optionality exists. SGX is on track for close to 30 listings in 2026 following a record SGD 3 billion in IPO proceeds in 2025, and the SGX-Nasdaq dual-listing bridge, expected to go live around mid-2026, could accelerate this further. By enabling Asia-based growth companies with market capitalisations of at least SGD 2 billion to list simultaneously in Singapore and on Nasdaq, the bridge may gradually diversify the STI beyond its historically financials- and real estate-heavy composition. “New-economy” companies typically command materially higher PE multiples than financial and real estate counterparts; a sustained shift in index composition toward these names could therefore drive multiple expansion beyond our current base case, representing a credible source of additional upside for long-term investors.

In our view, Singapore maintains a stable price environment, a strengthening safe-haven currency, and a policy framework designed to attract and retain global capital. For investors seeking both income and capital appreciation in a single developed-market allocation, Singapore equities remain one of the most compelling opportunities in the region.

Table 3: STI Earnings Table

Straits Times Index	FY2025A	FY2026E	FY2027E	FY2028E
PE Ratio (X)	15.2	15.4	14.3	13.1
Earnings Growth (YoY%)	6.2%	11.9%	7.3%	9.0%
Earnings Per Share (EPS)	305.0	341.3	366.2	399.1
Dividend Yield (%)	4.7%	4.3%	4.5%	4.6%
Target Price (15X fair P/E)				5,987
Upside Potential (%)				14.2%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 3 July 2026.

Figure 1: The Straits Times Index (STI) vs Earnings Per Share (EPS) chart

We recommend positioning through the Amova Singapore STI ETF (SGX: G3B) for broad, low-cost exposure to the STI. On the other hand, for investors seeking higher SMID-cap exposure beyond the STI 30 blue chips, we recommend the iFAST-Amova Singapore Equity A SGD.

Related article: Q&A Series: iFAST-Amova Singapore Equity fund leads with a 61.31%* return over the past year

Table 4: Recommended Products for the Singapore equity market

Exposure	Recommended Product
Singapore (Index)	Amova Singapore STI ETF (SGX: G3B)
Singapore (Active UT with SMID Exposure)	iFAST-Amova Singapore Equity A SGD

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.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report — including all investment theses, ratings, price targets and conclusions — has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.