Investors to lean on pricing power defensives and AI as Middle East tensions continue

Structural reforms remain a key tailwind for Singapore equities.

Singapore equities are expected to move past Middle East geopolitical concerns, with investors encouraged to focus on pricing power defensives, artificial intelligence (AI) and electronics, fiscal beneficiaries, and liquidity-reform winners, whilst maintaining hedges through high oil-price beneficiaries, according to RHB.

The report noted that the country's equity market entered the second quarter of 2026 facing cost pressures driven by geopolitical tensions, even as domestic demand remains firm.

The base case assumes a ceasefire scenario, with Brent crude stabilising at around $85 per barrel and economic growth holding at 3% year-on-year, albeit with downside risks toward 2.5%.

"In a “Sea of Red” scenario, Singapore’s GDP could decelerate to 1-1.5% as imported energy costs hit the manufacturing, transport, and petrochemical sectors," RHB said.

Exports and industrial activity are expected to remain moderately resilient, with non-oil domestic exports (NODX) projected to grow 3% and industrial production 4% in 2026. Electronics exports, supported by AI-driven demand, continue to be a standout growth segment.

Inflation forecasts have been revised upward, with headline inflation now expected at 2.5% and core inflation at 2% in 2026, reflecting higher energy costs filtering through the economy.

The Monetary Authority of Singapore (MAS) has responded by tightening policy, increasing the appreciation slope of the Singapore dollar nominal effective exchange rate (S$NEER). The currency remains strong within its policy band, and further tightening remains possible if inflation persists.

"We expect the authority to stand pat in July, with the balance of risks tilted towards a further mild tightening should the energy cost pass-through prove sticky," RHB said.

Interest rate expectations suggest a modest easing path, with one potential U.S. Federal Reserve rate cut in 2026. Singapore’s benchmark rates are expected to decline gradually, supporting—but not significantly boosting—sectors such as real estate investment trusts (REITs). 

Corporate earnings in Singapore are projected to grow steadily, with earnings per share (EPS) expected to rise 7.1% in 2026 and 6.7% in 2027. Key growth sectors include manufacturing and technology, industrials, telecommunications, and transport.

Financials are also expected to recover after a weak 2025. Real Estate Investment Trusts (REITs) are forecast to see moderate distribution growth, supported by easing financing costs.

Structural reforms remain a key tailwind for Singapore equities. Increased fund deployment, improved trading liquidity, and initiatives to enhance investor engagement are helping attract capital and support valuations, particularly amongst small- and mid-cap stocks.