Singapore’s economy grew 5.4% in 3Q26. Here’s why we remain positive on Singapore equities.

• Singapore’s economy grew 5.4% year-on-year (YoY) in 3Q26 (2Q26: +6.2%), with growth averaging around 6.0% over the first nine months of 2026, supported by manufacturing, construction and trade-related services.
• Manufacturing grew 7.5% YoY but contracted 0.9% QoQ, while construction accelerated to 8.8% YoY. The link to STI earnings is narrower than the headline suggests, as most AI-related manufacturing gains accrue to companies outside the index.
• September Non-Oil Domestic Exports (NODX) rose 68.4% YoY, the 13th straight month of growth, taking nine-month growth to 27.6%, while multi-year AI capacity commitments extend the export runway.
• Singapore’s appeal as a safe-haven wealth hub continues to draw capital into the local banks, supporting their fee income, while market reforms are improving liquidity, particularly for small and mid-caps.
• The STI fell less than tech-heavy markets on the worst days of the chip selloff, though it is down close to 4.5% month-to-date as the banks also corrected. We maintain our 4.0-star “Very Attractive” rating and STI target of 6,223 by end-2028, implying 14.9% upside alongside a dividend yield of around 4.3% to 4.6%.

Singapore’s economy delivered another solid quarter. Based on advance estimates, real GDP grew 5.4% YoY in 3Q26 (2Q26: +6.2%), while seasonally adjusted quarter-on-quarter (QoQ) growth eased to 1.1% from 1.5%.

A higher base explains part of the YoY moderation, but momentum also cooled sequentially, with manufacturing contracting 0.9% QoQ after a 6.3% surge in 2Q26. Services growth improved to 1.2% QoQ from 0.7% and construction rebounded 3.4% QoQ, while growth has averaged around 6.0% YoY over the first nine months of 2026, on track within the full-year forecast of 4.5–5.5%.

For equity investors, the more important question is whether this growth is reaching STI earnings. In our view, the link is real but narrower than the GDP headline implies: (i) banks benefit through loan demand and asset quality, (ii) industrials through transport engineering and global order books while most (iii) AI-related manufacturing gains accrue to companies outside the index.

Table 1: Singapore 3Q26 GDP Snapshot (advance estimates)

Indicator	3Q26	2Q26
Real GDP Growth (YoY)	+5.4%	+6.2%
Real GDP Growth (QoQ, SA)	+1.1%	+1.5%
Manufacturing (YoY)	+7.5%	+12.9%
Construction (YoY)	+8.8%	+6.1%
Wholesale & Retail Trade and Transportation & Storage (YoY)	+8.0%	+6.9%
Information & Communications, Finance & Insurance and Professional Services (YoY)	+4.3%	+5.1%
Accommodation & Food, Real Estate and Other Services (YoY)	+2.1%	+2.4%
Full-Year 2026 GDP Forecast	4.5% to 5.5%	4.5% to 5.5%
Source: Ministry of Energy, Trade and Industry (METI), Press Release, 14 October 2026.

Related article: SG’s 2026 growth forecast upgraded to 4.5–5.5%: AI upcycle lifts outlook, positive view maintained

Economic growth reaches STI earnings, but through narrower channels

Manufacturing grew 7.5% YoY in 3Q26 (2Q26: +12.9%), led by the electronics, precision engineering, transport engineering and general manufacturing clusters, which outweighed declines in chemicals and biomedical manufacturing. One quarter of sequential contraction does not by itself establish a turn in the cycle: the September manufacturing PMI, a sequential gauge, rose to 51.7, its highest since October 2018, with order backlogs at record highs.

Only some of these clusters map directly to the STI’s constituents. Transport engineering has the clearest link, through ST Engineering’s aerospace business and Seatrium’s offshore and marine yards, while electronics and precision engineering mainly benefit semiconductor names outside the STI, such as AEM, UMS and Frencken.

Related article: ST Engineering: Three engines, one flight path

Related article: Industrials cement their role as the STI's earnings growth engine

The mid-October chip selloff showed that semiconductor exposure comes with volatility. On 15 October, AEM Holdings, UMS Integration and Frencken Group fell 9.9%, 10.0% and 6.4% respectively, as faster US inflation lifted bets on further Federal Reserve hikes and AI funding concerns resurfaced. Their fundamentals, however, look intact. These companies depend on chipmakers’ equipment spending, which SEMI expects to rise 23.1% in 2026 and 21.8% in 2027, and TSMC reaffirmed its 2026 capex budget of USD 60 to 64 billion on 15 October, in the middle of the selloff. Funding concerns have centred on leveraged players such as CoreWeave rather than the cash-rich hyperscalers behind most AI spending. For the STI, the direct impact is limited, as these names sit outside the index.

Related article: Singapore’s semiconductor stocks: Selloff opens an entry point as the upcycle broadens

Domestic activity adds a second layer. Construction accelerated to 8.8% YoY (2Q26: +6.1%) and 3.4% QoQ on higher public and private output. This feeds into earnings through higher volumes for building materials suppliers, such as steel reinforcement and ready-mix concrete producers, and fuller order books for contractors, though most are SMIDs outside the STI. For the index, domestic activity matters mainly through the banks, via loan demand and asset quality.

Related article: BRC Asia Limited: Riding the construction upcycle

Related article: Pan-United 1H26: Strong 1H growth, longer runway, but valuation catches up

Exports surge as capital continues to flow into Singapore

September NODX rose 68.4% YoY (August: +46.1%), its 13th consecutive month of growth. Part of the jump was lumpy, with non-electronic NODX (+54.2%) lifted mainly by ship and boat structures. The more durable signal is electronics, up 107.6% on disk media products (+312.4%), personal computers (+149.5%) and integrated circuits (+74.7%), more than doubling for a third straight month. Growth was broad-based across Hong Kong (+112.1%), Taiwan (+96.9%), South Korea (+96.0%) and the US (+73.2%). Nine-month NODX growth of 27.6% is well above Enterprise Singapore’s full-year forecast of 14.0–16.0%.

Capital continues to flow into Singapore through two routes, neither of which is driven directly by the export surge:

• First, long-term investment. AI-related capacity is anchoring multi-year investment, including VSMC’s USD 7.8 billion Tampines fab, KLA’s USD 200 million expansion and Applied Materials’ USD 500 million campus. These are not a result of the export surge, but they should add to future export capacity. OpenAI has also committed more than SGD 300 million to Singapore’s AI ecosystem.
• Second, wealth and safe-haven capital. Singapore’s political neutrality, rule of law and AAA sovereign rating continue to attract global and regional wealth amidst geopolitical uncertainty. On 5 October, MAS Chairman Gan Kim Yong noted that private banking client assets in Singapore have risen about 50% over the past five years.

Exports matter for investors mainly through growth and the currency instead. MAS sets the slope of the S$NEER policy band based on its inflation and growth outlook. On inflation, core inflation eased to 2.0% in September, with headline inflation at 2.2%, but elevated oil prices keep imported cost pressures in view, which a firmer SGD helps to contain. On growth, strong export-led momentum means the economy can absorb a stronger currency. Together, these support a continued gradual appreciation path rather than any easing. A steadily firmer currency, in turn, raises the appeal of SGD-denominated assets for foreign investors.

Related article: NODX at 46.2%: Singapore’s strongest export print since 1988 confirms broadening upcycle

Spillover into Singapore equities: banks lead, liquidity broadens

The banks are the most direct beneficiaries of these wealth inflows. Fund management and banking services led finance & insurance growth in 3Q26, consistent with continued asset gathering: in 1H26, OCBC generated SGD 11 billion of net new money, DBS’s wealth AUM surpassed SGD 500 billion and UOB’s high-net-worth AUM rose to SGD 204 billion. This expands the base for recurring fee income, the sector’s main growth engine.

The banks have not been immune to volatility. Ahead of the chip selloff, all three corrected sharply after analysts issued warnings and downgrades due to macroeconomic headwinds, particularly surging long-term bond yields and compressing profit margins. Citi downgraded OCBC, citing flat 3Q26 earnings and a 70-basis-point decline in its CET1 ratio to 13.3%, while JP Morgan recommended trimming OCBC and DBS.

In our view, net interest margins are stabilising, and a higher rate path could lift net interest income above previous guidance. On capital, OCBC’s thinner CET1 buffer limits returns beyond its SGD 2.5 billion programme, one reason we prefer DBS.

That rate support is already visible, with three-month compounded SORA rising to around 1.26% (as of 23 October 2026) from its May low (1.08% on 15 May 2026) and the Federal Reserve’s September hike reinforcing a higher-for-longer rate environment. The 3Q26 results in early November will test both the earnings and capital concerns directly.

Related article: Singapore banks: Sell-off tests the rally, but fundamentals hold

Related article: Fee-led growth, compelling total returns: Singapore banks after 1H26

Beyond the banks, reform-driven liquidity is broadening participation. MAS has placed SGD 5.4 billion across 14 asset managers under the Equity Market Development Programme (EQDP) and committed SGD 20 million for a new GEMS Market Making Grant to support market making in around 80 small and mid-caps (SMIDs), while SGX-listed companies bought back SGD 2.09 billion of shares in the first eight months of 2026, 33% more than a year earlier.

That said, many quality SMIDs have already re-rated, so returns from here are likely to be more differentiated. We favour companies whose earnings growth can justify higher multiples, particularly within domestic construction, semiconductor supply chain and data centre names.

Resilience and income strengthen the case for Singapore

Singapore’s 3Q26 GDP data supports the investment case, though mainly through specific channels rather than a broad lift to index earnings. Domestic growth supports bank lending and asset quality, while wealth inflows and a firmer rate backdrop, which are independent of GDP, add further support for the banks. Industrials benefit from global order books, while market reforms are supporting liquidity and valuations, particularly for SMIDs.

Neither recent sell-off, first in the banks and then in chip stocks, has changed this picture, though the banks’ 3Q26 results will need to address the earnings and capital concerns raised. The chip selloff has also highlighted why Singapore deserves a place in investors’ portfolios. As global equity returns concentrate in AI and technology, the STI’s anchor in banks, industrials and REITs offers limited overlap. Its earnings depend more on interest rates, wealth flows and global defence and infrastructure spending than on the AI cycle, which is what makes it a useful diversifier.

This resilience is relative rather than absolute. The STI is down close to 4.5% month-to-date (as of 22 October 2026), weighed by the bank sell-off given the banks’ heavy index weighting, but it has fallen less than tech-heavy markets on the worst days of the chip rout, as it did during the tech sell-offs since July. The KOSPI fell nearly 14% over five straight sessions to 13 October, a day on which the STI edged up 0.3%, and on 15 October, as the KOSPI fell 7.6% and the Nikkei 225 fell 4.9%, the STI eased 0.4%.

Income adds a further buffer. With a projected dividend yield of 4.3–4.6% over 2026–2028, the STI remains among the higher-yielding major equity markets globally, providing a source of return that is less dependent on short-term shifts in market sentiment.

Table 2: STI offers a high dividend yield among major global and regional markets

Index	2026E	2027E	2028E
STI	4.0%	4.2%	4.3%
Hang Seng Index	3.4%	3.6%	3.9%
MSCI World High Dividend Yield Index	3.2%	3.3%	3.5%
MSCI Asia ex Japan Index	2.2%	2.6%	3.1%
KOSPI	2.0%	2.5%	3.0%
Nikkei 225	1.5%	1.7%	1.9%
S&P 500	1.1%	1.2%	1.3%
Source: Bloomberg Finance L.P., iFAST Compilations. Data as of 30 Sep 2026.

Our STI earnings growth forecasts of 11.9% in 2026E, 10.9% in 2027E and 9.7% in 2028E rest more on bank and industrial fundamentals than on the GDP headline, though a strong domestic economy still supports loan demand and asset quality. We maintain our 4.0-star “Very Attractive” rating and our STI target of 6,223 by end-2028, based on 15x FY2028E earnings, implying 14.9% upside from the 22 October 2026 close of 5,415.

Table 3: STI earnings table

STI	2025	2026E	2027E	2028E
PE Ratio (X)	15.2	15.9	14.3	13.1
Earnings growth (YoY%)	6.2%	11.9%	10.9%	9.7%
Projected Earnings Per Share (EPS)	305.0	341.3	378.3	414.9
Forward Dividend Yield (%)	4.7%	4.3%	4.5%	4.6%
Target Price (Based on 15X fair P/E Ratio)				6,223
Upside Potential (%)				14.9%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 22 Oct 2026

Figure 1: STI index level vs EPS

Overall, Singapore offers a differentiated combination of earnings growth, income and resilience. We recommend the Amova Singapore STI ETF (SGX: G3B) for broad, low-cost exposure to the STI and its dividend income.

Within the STI, the banks’ recent sell-off has eased valuations, though price upside remains limited and dividends continue to anchor their total returns. We keep our target prices unchanged:

• DBS (SGX: D05), target price SGD 77.40, implying 3.8% upside from SGD 74.57. DBS remains our top pick, as its stronger earnings quality and forward yield of around 4.7% offer the best balance between earnings resilience and shareholder returns.
• OCBC (SGX: O39), target price SGD 32.00, implying 10.2% upside from SGD 29.05. Its thinner CET1 buffer limits capital returns beyond its SGD 2.5 billion programme, leaving its forward yield lower at around 3.7%.
• UOB (SGX: U11), target price SGD 42.20, implying 0.8% upside from SGD 41.88, with limited price upside after its recovery.

Outside the index, the selloff has created a more attractive entry point in SGX-listed semiconductor names:

• AEM Holdings (SGX: AWX), BUY, target price SGD 10.93, implying 32.6% upside from SGD 8.24. AEM offers the strongest earnings growth among its peers and a growing recurring revenue base.
• UMS Integration (SGX: 558), HOLD, target price SGD 2.54, implying 14.4% upside from SGD 2.22. Its capacity expansion raises its fixed-cost base, leaving earnings more sensitive to any slowdown in equipment spending.

For investors seeking exposure to quality small and mid-caps beyond the STI’s 30 constituents, we recommend the iFAST-Amova Singapore Equity A SGD. With the recent launch of its distribution share class (iFAST-Amova Singapore Equity D SGD), the fund also offers an option for investors who prefer regular distributions. In our view, its combination of flexibility, proven track record and broader market exposure makes it a more compelling choice for accessing Singapore’s next phase of growth.

Related article: Beyond the blue chips: Why iFAST-Amova is our pick over the EQDP funds

Related article: Singapore outlook 4Q26: Earnings and income carry the STI as reforms run further

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.