After years of inflation, rate hikes, and geopolitical tensions, one might have thought these could be enough to drive the final nail in the coffin of a historically moribund Singapore market.
But no.
Not only has it survived these headwinds, but it has also thrived, with the Straits Times Index (SGX: ^STI) reaching a new high of 5,000 earlier this year.
We check out whether 2026 could be the strongest year that patient investors are waiting for.
Why the Backdrop Is Improving
Rising AI-related demands dramatically boosted growth in the manufacturing and electronics sectors.
Meanwhile, Singapore’s SORA stabilised at just under 1%, from the peak of 4% back in 2023.
For significantly leveraged REITs and high-dividend stocks, these dual tailwinds could potentially ease financing pressures, raising the prospects of increased dividend payouts for investors.
Moreover, it helps that Singapore’s reputation as a stable financial hub is a magnet for institutional capital inflows.
With a confluence of multiple tailwinds, the Singapore market is poised for greater years ahead.
The Sectors That Could Lead the Market Higher
A rising tide lifts all boats, but not equally.
Industrial REITs exposed to logistics and data centres should outperform the overall sector as they capitalise on the structural AI-led demands for digital infrastructure.
Singapore Technologies Engineering (SGX: S63), or STE, could anchor Singapore’s growth in the industrial and engineering sector, having seen strong tailwinds from increased defence spending amid renewed geopolitical tensions.
In the tech space, firms like AEM Holdings Limited (SGX: AWX) and Venture Corporation Limited (SGX: V03) remain integral to the AI ecosystem, riding the wave of rising semiconductor demands.
Wealth digitalisation and increased retail investments could also benefit from growing fintech services like iFAST Corporation (SGX: AIY).
Why Singapore Investors May Be Better Positioned Than Before
As the US market trades at uncomfortably high earnings multiples, the Singapore market becomes an indirect beneficiary with its relatively reasonable valuations.
Moreover, Singapore Exchange (SGX: S68) listed ETFs like SPDR Straits Times Index ETF (SGX: ES3) that tracks the Straits Times Index (SGX: ^STI) pay an attractive dividend yield of 3.4%, supported by mature businesses in banking, telecommunications and real estate, appealing to income investors.
Crucially, these dividends are tax-free for Singapore investors.
While large-caps provide stability, mid-caps are rising as they benefit from increased capital inflows driven by government programmes like the Equity Market Development Programme (EQDP) and the launch of the iEdge Singapore Next 50 Index.
What Could Still Go Wrong
Higher energy prices could reignite inflation, potentially triggering monetary tightening policies from regulators.
This, in turn, could reduce export competitiveness for local businesses
Furthermore, any additional tariffs against Singapore exports could further squeeze local companies’ export margins.
A combination of both headwinds could lead to an interest rate rebound, exerting financing pressure on leveraged businesses like REITs.
In the tech space, with hundreds of billions of investments committed to AI infrastructural build-out, any unexpected pullback due to overcapacity could send shockwaves across tech-exposed sectors.
How Investors Can Position for 2026
To optimise portfolio returns, nothing beats the time-tested practice of owning high-quality stocks.
For Singaporean investors, this includes staple holdings of Singaporean bank stocks like DBS Group Holdings (SGX: D05), Oversea-Chinese Banking Corporation (SGX: O39), and United Overseas Bank (SGX: U11).
Defensive infrastructure-linked industries like STE should also be on investors’ radar. Its massive order books offer earnings visibility that ensures reliable dividend payouts.
High-quality REITs with well-staggered debt maturities and assets in high-demand locations offer protection against potential interest rate spikes.
Why This Cycle Feels Different
In my opinion, there are three structural reasons to be optimistic about the current rally.
The nascent AI revolution offers a long growth runway for patient investors who stay invested in businesses which are actively involved in the nation’s AI transformation, like Singapore Telecommunications (SGX: Z74) and Keppel DC REIT (SGX: AJBU)
Singapore’s population is aging, and that fuels a structural rise in the silver economy, benefiting healthcare providers like Raffles Medical Group Ltd (SGX: BSL) and Parkway Life REIT (SGX: C2PU).
Improved regional integration with Johor through the opening of the Johor-Singapore Special Economic Zone (JS-SEZ) could potentially benefit businesses that operate supply chains that span both regions.
Get Smart: Bull Markets Often Begin Before Confidence Fully Returns
After the rate-hike cycle in 2022, the Singapore market emerged stronger than before – stronger banks, a revived industrial sector, and a bold EQDP expansion supported by the government.
While transitory headwinds in higher energy prices and geopolitical tensions exist, long-term tailwinds like the Silver Economy and JS-SEZ integration ensure long-term structural growth remains intact.
Still, not all businesses benefit equally, and owning high-quality businesses remains key to capturing sustainable returns.
The stock market is forward-looking and rewards investors who position early in quality businesses.
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Disclosure: Larry L. owns shares of DBS, OCBC, UOB, Keppel DC REIT and Parkway Life.
