Review: Singapore equities posted their fifth consecutive and strongest quarterly
gain, rising 9.8% in 3Q26 and touching a fresh record on 4 September. A 22% YTD
advance ranks Singapore as Asia’s fourth-best performer. Banks led 3Q26
outperformance on above-consensus 2Q26 results, driven predominantly by the jump
in wealth management fees (Figure 1). Shipbuilders rallied on an order book recovery
as US-to-China container freight rates surged 36% (Figure 2). Cost pressures and
demand headwinds weighed on consumer and food-related counters (Figure 3). The
spike in bond yields, worsened by hawkish Fed rhetoric and elevated dot plots,
triggered a de-rating across S-REITs (Figure 4).
Outlook: EQDP is now in its 3rd phase – 1st phase (Jul25) S$1.1bn to 3 fund managers,
2nd phase (Nov25) S$2.85bn to 6 fund managers and recently 3rd phase (Sep26)
S$1.45bn to five fund managers. The 4th batch is expected to be announced in 2027,
bringing cumulative announcements to S$5.4bn of the S$6.5bn allocated. We believe
EQDP has served as a structural catalyst for Singapore’s small-mid cap stocks. First,
since the EQDP announcement in February 2025, small-mid caps have rallied and
outperformed (Figures 8/9). Secondly, institutional participation has been more
significant, with higher-conviction ownership in small-mid cap names (Figure 10).
Perhaps peers are more fleet-footed or undecided in their views. Finally, the size of
Singapore dedicated equity funds has ballooned. Across three EQDP funds we
observed, assets under management soared almost 5-fold over the past eight months
this year (Figure 11). This rise reflects a combination of performance, EQDP funding,
and assets raised from the public. Without EQDP, Singapore equities risk directing
blind passive flows into concentrated overvalued large caps. Ultimately, EQDP’s
strategic success should be gauged by the re-rating in the valuations and performance
of small mid-cap stocks – not by driving DBS to S$100.
We do not expect rising global bond yields to derail economic growth or equities.
Higher yields mirror improving economic conditions (Figure 12). Aggressive AI-driven
capex is accelerating corporate demand for capital (Figure 13), as we transition from
a savings glut to a capital-starved world.
Recommendation: In our Absolute 10 model portfolio, we removed Stoneweg
Europe Stapled Trust and replaced it with Singtel. Uncertainty over bond yields and
inflation risk from the Middle East conflict keeps us underweight REITs. Expectations
are for at least one more rate hike this year and even two next year (Figure 14). While
Bharti Airtel’s consolidation caps Singtel’s share price (Figure 15), Singtel offers
structural earnings and monetisation drivers through data centres and GPU-as-a
Service (GPUaaS). Critically, mobile price repair is underway in Australia, India, the
Philippines, Thailand and eventually Singapore. In construction, our preferred
segment is building materials and dormitories. We expect order momentum to peak
post Terminal 5 awards. Property stocks have de-rated due to interest rate worries.
High rates, especially in Australia and the UK, will also dampen valuations and efforts
to monetise assets. We remain positive on banks. Rising interest rates could give banks
pricing power, alongside loan volume growth. We are especially bullish on
semiconductors. The earnings upcycle only started this year, and it will be an attractive
small- and mid-cap target for EQDP funds. Oil and gas is another sector we are positive.
The once-hated fossil fuel is enjoying a revival due to energy security. Firmer oil prices
can stimulate a capex cycle, driving up demand. Offshore Support Vessel operators
benefit from an ageing global fleet and tight yard capacity for small-to-mid tonnage.
A 60% YTD rally in coal prices alongside a 50% output expansion provides strong
earnings leverage for Geo Energy. We are underweight hospitals and consumer.
Insurance payers are pressuring all healthcare providers on pricing. Consumer
spending is still reeling from rising inflation. The rise in government bond yields has
made Singapore equities less attractive. Earnings yield spread over 2-year bond yields
(or equity risk premiums) are at multi-year and 1 standard deviation lows (Figure 16).
It can cap overall market multiples.
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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.
