Review: Singapore equities endured a difficult month. The 5.3% pullback was the
steepest monthly drop since the 17% rout in March 2020. Cyclicals and commodities
bore the brunt of the de-risking (Figure 3), while banks retreated amid fears of
disappointing results (Figure 1). Conversely, Jardine Group counters led gains on
optimism over asset-recycling targets (Figure 2). The Next50 mid-cap index shed 7%,
while REITs were resilient, easing just 1% (Figure 4).
Outlook: Hyperscalers remain committed to the buildout of AI infrastructure (Figure
8). Amazon mentioned AI is a once-in-a-lifetime opportunity. Its data centre capacity
is largely sold out in 2027, with a good chunk sold in 2028. The negative free cash
flows are a symptom. Upfront CAPEX must be incurred to build data centres before
revenue streams come in. De-risking across AI exposures has weighed on global
cyclicals. The spike in AI equity and debt issuance (Figure 9) has pushed investors to
reduce their exposure and concentration in this sector. Semiconductor stocks have
corrected 15%, with credit default spreads (Figure 10) and borrowing costs rising
sharply. Nevertheless, memory prices (Figure 11) or GPU lease rates (Figure 12) do
not reveal any tapering in infrastructure demand. We believe the AI adoption cycle is
in its infancy, since physical infrastructure is still being built out. Hard to be an AI
train wreck if it is so well telegraphed. Demand for AI is tremendous, as reflected by
the 11-fold jump in Anthropic’s revenue in 3Q26 (Figure 13). Anthropic counts
11,900 substantial enterprise customers. This is still modest compared to the
broader market opportunity implied by Salesforce’s 150,000 customers. However,
the proliferation of AI is starting to hurt other parts of the ecosystem. AI agents are
disintermediating traditional web search, while soaring memory prices dampen PC
hardware and software demand. During the dot-com boom (1995–2000), the market
faced multiple drawdowns, including a 26% contraction over three months in 1998
(Figure 14). Nasdaq is currently ~8% below its peak.
Recommendation: High beta stocks were pummelled in October. Semiconductors
plunged 24%, followed by commodities, down 20%. We remain positive on
semiconductors. Earnings recovery only began early this year. Singapore
semiconductor companies have the added earnings driver from front-end equipment
makers widening their supply chains. Our semiconductor picks are Frencken and JEP.
Commodities present another opportunity. Geo Energy is riding on expanding
volumes, firmer prices and lower costs. Meanwhile, banks face near-term headwinds
from trading losses and the threat of a provisioning cycle in Indonesia. But wealth
management fees are robust, and interest income is bottoming.
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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.
