Review: Singapore equities rose 8.9% in July, registering another record high. Gains
were supported by a stellar 13% rally in banks (Figure 1). Banks’ earnings are expected
to bottom as loan and deposit growth drive up net interest income. Other gainers were
shipyards and property (Figure 2). Laggards were technology and defence (Figure 3).
REITs reported modest gains of 3% (Figure 4).
Outlook: The AI theme has been under selling pressure from the deleveraging
underway in South Korea and hedge funds (Figure 6). We remain positive on the
technology sector, as the backdrop is positive at both the macro (Figure 8) and micro
levels. South Korea exports are still surging 68% YoY in July, and equipment maker Lam
Research is guiding 52% YoY revenue growth in 3Q26. We believe semiconductor
equipment makers in Singapore are facing supply constraints due to surging demand.
There are multiple sectors in Singapore enjoying unprecedented growth. Several REITs
are reporting dividend growth of 25% or higher due to lower interest expenses. Rental
reversions are also growing 5 to 11%. Vibrant capital markets are driving up volumes
for exchanges and brokers. It has also catalysed more accretive acquisitions by
corporates such as Sembcorp Industries, Q&M Dental and A-Sonic Aerospace. Building
materials, namely ready-mixed concrete, are reporting surging volumes. Supermarket
operators are opening new stores at record pace as competition ebbs. Robust exports
are boosting earnings for ports, logistics, and electronics manufacturers (Figure 9).
Sluggish sectors include (i) private healthcare faced with rising public hospital capacity
and foreign competition (Figure 10); (ii) land transportation as taxi fleet decline
accelerate from new competition (Figure 11); (iii) real estate agencies face slower
property launches after the stellar 2025; (iv) telcos are under intense mobile
competition spreading into the lucrative roaming market; (v) companies with
exposure in China that is undergoing deflation and weak consumer sentiment despite
record low interest rates (Figure 12/13).
Recommendation: We believe a rotation from banks to other large caps is warranted.
Whilst loan growth and cheaper deposits (Figure 14) will improve net interest income,
we believe the record valuations have priced in these expectations. We believe there
is higher earnings growth in other large caps – (i) Keppel Ltd’s 2H26 will perform
stronger from the commissioning of a new power plant, higher asset management
fees with the spike in funds under management and rising maintenance income from
waste-to-energy plants and submarine cables; (ii) Sembcorp’s 1H26 earnings are
expected to be weaker due to weather-related renewables output. The acquisition of
Alinta will prop up earnings; (iii) Singtel’s asset monetisation efforts are gaining more
ground from potential stake sale in Optus and listing of its Nxera data centre
operations.
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Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.
He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.
