AI demand continues to confirm our case for Singapore equities

• The GDP print beat expectations but moderated: Singapore's economy grew 5.7% YoY in 2Q26 (vs. 5.5% consensus), down from 6.3% in 1Q26.
• AI demand is the one driver fully confirmed by the data: manufacturing accelerated to 12.2% YoY, led by electronics and precision engineering on AI-related chip and equipment demand.
• Capital markets are a separate, strengthening thesis: Securities Daily Average Value hit SGD 2.1 billion in June, backed by Singapore's 8% share of global sovereign wealth fund assets and EQDP expansion to SGD 6.5 billion.
• Banking and industrials rest on their own evidence, not the GDP print: DBS crossed a SGD 200 billion market cap with record Q1 income; ST Engineering and Yangzijiang's multi-year order books remain at record highs.
• We maintain a constructive view on Singapore equities, with an STI target of 5,987 by end-2028 and approximately 4.3% annual dividend yield. Our outlook is underpinned by four key structural drivers: (i) sustained AI-related demand, (ii) Singapore’s strengthening safe-haven status and banking inflows, (iii) industrials-led earnings growth, and (iv) capital market revitalisation supporting broader liquidity and potential mid-cap re-rating.

Our bullish call on Singapore equities rests on four structural drivers: sustained AI-related demand, the strengthening of Singapore banks' safe-haven status, industrials-led earnings growth, and capital market revitalisation. Singapore's 2Q26 GDP print is the first hard data since 1Q26 to gauge how those drivers are holding up amidst the intensifying Middle East conflict.

Of our four drivers, AI demand is confirmed directly by this quarter's data. The other three — capital markets, banking, industrials — rest on their own evidence, and in each case that evidence is stronger than a single GDP print could offer.

In this article, we unpack what Singapore’s latest GDP print means for our investment case and reaffirm why we think Singapore is an attractive investment opportunity.

The GDP print: A beat, with a base effect

Real GDP grew 5.7% year-on-year (YoY) in 2Q26, above the 5.5% consensus estimate, moderating from the 6.3% growth recorded in 1Q26. On a seasonally-adjusted quarter-on-quarter (QoQ) basis, growth came in at 1.1%, extending the 1.3% expansion in 1Q26. Importantly, the moderation in the annual figure is a base effect, not a loss of momentum.

Manufacturing, the segment our AI demand driver is built on, grew 12.2% YoY in 2Q26, accelerating from 8.0% in 1Q26. MTI attributed the acceleration to output increases in the electronics and precision engineering clusters, driven by sustained AI-related demand for semiconductors and semiconductor manufacturing equipment.

The one genuine tension in this quarter's data: the chemicals cluster within manufacturing contracted, with the feedstock disruption tied to the Middle East conflict now persisting into a second consecutive quarter, while the biomedical cluster also shrank. Elsewhere, services growth broadened but moderated across the board, and construction growth slowed sharply after an unusually strong first quarter.

Table 1: Singapore 2Q26 GDP Snapshot

Indicator	2Q26	1Q26
Real GDP Growth (YoY)	+5.7%	+6.3%
Real GDP Growth (QoQ, SA)	+1.1%	+1.3%
Manufacturing (YoY)	+12.2%	+8.0%
Construction (YoY)	+6.2%	+12.9%
Wholesale & Retail Trade and Transport & Storage (YoY)	+6.3%	+9.3%
Info-Comms, Finance & Insurance and Professional Services (YoY)	+3.9%	+4.5%
Accommodation & Food, Real Estate, Admin & Support and Other Services (YoY)	+2.7%	+3.2%
Source: Ministry of Trade and Industry (MTI), Press Release, 14 July 2026.

AI demand: The driver this quarter confirms

This is our strongest driver this quarter, and the data supports it without qualification.

Manufacturing swung from a 2.2% QoQ contraction in 1Q26 to 5.3% growth in 2Q26 — the acceleration behind the 12.2% YoY print. That swing is the real story; the moderation in the headline YoY GDP figure is last year's high base catching up with this year's number, not a sign that AI-linked demand is fading.

Growth was led by the electronics and precision engineering clusters, driven by demand for networking chips, memory chips, and semiconductor manufacturing equipment tied to the ongoing global data centre build-out.

The trend is showing up at the company level, not just in aggregate data. UMC, Taiwan's second-largest contract chipmaker, brought its first mass-produced silicon photonics wafers to production readiness at its Singapore facility in July — targeting high-speed optical interconnects for AI and hyperscaler data centre networks. King Yuan Electronics and Vanguard International Semiconductor are separately expanding their own Singapore footprints, pointing to a broader wave of AI-enabling capacity rather than a single company's bet.

MTI has itself reaffirmed AI and electronics demand as a key growth driver for the remainder of 2026, and Nvidia's commitment to establish a research hub in Singapore reinforces the long-term ecosystem beyond the current capex cycle. The breadth of names now expanding capacity in Singapore — from UMC to Vanguard to King Yuan — suggests this is a broad-based trend, not a bet on any single company or product line.

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

Capital markets: A separate, strengthening thesis

This driver doesn't need the GDP print to make its case.

Singapore's Securities Daily Average Value (SDAV) reached SGD 2.1 billion in June 2026, with small- and mid-cap (SMID) turnover rising alongside sustained institutional net buying.

That sits within a larger structural shift: Singapore hosts around 8% of global sovereign wealth fund assets and USD 4.6 trillion in assets under management (AUM). APAC AUM is projected to grow at a 6.8% CAGR through 2030, outpacing North America's 6.2% and Europe's 5.6%.

At Budget 2026, MAS topped up the Financial Sector Development Fund by an additional SGD 1.5 billion and expanded the Equity Market Development Programme (EQDP) from SGD 5 billion to SGD 6.5 billion, of which SGD 3.95 billion has been allocated across nine appointed asset managers — leaving roughly SGD 2.6 billion still to be deployed in the second half.

Separately, a new CPF life-cycle investment scheme launching in 2028 could direct up to SGD 9 billion annually into Singapore equities.

Related article: EQDP: The spark that Singapore's equity market needed — and why the momentum is here to stay

Banking and industrials: Untested by GDP, backed by their own evidence

Neither driver is tested by this quarter's GDP print — not because the case is weak, but because the evidence for both sits elsewhere.

• Banking

All three Singapore banks grew their wealth management segment in 1Q26. DBS became the first Singapore-listed stock to close above SGD 200 billion market cap on 13 July, with shares up 26% year-to-date. The bank now targets over SGD 1 trillion in wealth AUM by 2030, up from SGD 632 billion. OCBC's Q1 wealth income rose 11% to SGD 1.48 billion, with AUM up 12% to SGD 342 billion, as management targets doubling the wealth business by 2029; UOB's AUM grew 5% to SGD 198 billion even as overall profit eased on margin pressure, with management guiding to double wealth income by 2030.

We expect safe-haven flows into Singapore to persist amid ongoing geopolitical uncertainty, and Singapore's banking sector could continue benefiting from resulting shifts in capital allocation. The managed SGD appreciation framework further reinforces its role as a wealth-preservation currency amid oil-driven imported inflation.

• Industrials

Beyond financials, industrials are increasingly contributing to earnings expansion across the Singapore market. ST Engineering's order book stood at SGD 34.5 billion as at 31 March 2026, with SGD 4.8 billion in new contract wins in Q1 alone; Yangzijiang Shipbuilding's order book reached USD 22.3 billion across 252 vessels through 2030. Both companies have addressed Middle East exposure directly: ST Engineering assesses first-order financial impact as "not material," with Middle East revenue under 3% of group revenue, while Yangzijiang's CEO says contracts already in advanced negotiation "are not affected."

Record backlogs provide multi-year earnings visibility, while the pace of new contract wins points to further upside in forward earnings expectations. This segment is therefore playing a growing role in driving overall STI earnings growth, complementing financials which remain the primary source of income yield for the index

Related article: SG banks 1Q26: Non-interest income drives earnings resilience, supporting constructive outlook

Related article: Singapore: STI to hit near 6,000 by the end of 2028, alongside an annual dividend yield of 5%

Related article: MAS tightens as expected: A stronger SGD reinforces the positive stance for Singapore’s market

What’s next

This quarter's data confirms AI demand directly; capital markets, banking, and industrials each stand on their own separate evidence. The main risk is concentration — Singapore's growth leaned heavily on one export-facing cluster this quarter — but the breadth of capacity now expanding across UMC, Vanguard, and King Yuan argues against that fragility. DBS's Q2 results on 6 August 2026 are the next checkpoint for the banking driver — a test of whether the wealth momentum described above continues at pace, not whether the thesis holds at all.

We remain constructive on Singapore equities, with an STI target of 5,987 by end-2028, based on 15x FY2028E price-to-earnings and an average annual dividend yield of around 4.3%.

Table 2: STI Earnings Table

Straits Times Index	FY2025A	FY2026E	FY2027E	FY2028E
PE Ratio (X)	15.2	16.1	15.0	13.8
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%	4.1%	4.3%	4.4%
Target Price (15X fair P/E)				5,987
Upside Potential (%)				9.0%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 14 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 3: 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.