PhillipCapital Strategy & Stock Picks 4Q2026: Key Sectors and Equity Market Outlook October 8, 2026

Brief Overview

Singapore equities posted their fifth consecutive and strongest quarterly gain, rising 9.8% in 3Q26 and reaching a fresh record on 4 September. A 22% year-to-date advance ranks Singapore as Asia’s fourth-best performer. Banks led the outperformance on above-consensus 2Q26 results driven by a jump in wealth management fees, while shipbuilders rallied on an order book recovery as US-to-China container freight rates surged 36%. Cost pressures and demand headwinds weighed on consumer and food-related counters, and a spike in bond yields triggered a de-rating across S-REITs.

Investment Positives

The Equity Development Programme (EQDP) has served as a structural catalyst for Singapore’s small-mid cap stocks. Now in its 3rd phase — with S$5.4 billion of the S$6.5 billion allocation announced cumulatively — EQDP has driven a rally in small-mid caps since its February 2025 announcement. Institutional participation has become more significant, with higher-conviction ownership in small-mid cap names, and Singapore-dedicated equity fund assets under management soared almost five-fold over the past eight months.

Rising global bond yields are not expected to derail growth. Higher yields mirror improving economic conditions, and aggressive AI-driven capital expenditure is accelerating corporate demand for capital, marking a transition from a savings glut to a capital-starved world.

Banks remain a favoured sector, with rising interest rates providing pricing power alongside loan volume growth. Semiconductors are viewed especially positively — the earnings upcycle has only just begun this year, making the sector an attractive EQDP target. Oil and gas enjoy a revival due to energy security concerns, firmer oil prices stimulating a capex cycle, and Offshore Support Vessel operators benefiting from an ageing fleet and tight yard capacity. A 60% year-to-date rally in coal prices alongside a 50% output expansion provides strong earnings leverage for Geo Energy. In construction, building materials and dormitories are preferred segments, with order momentum expected to peak post Terminal 5 awards. Singtel was added to the Absolute 10 portfolio, offering structural earnings and monetisation drivers through data centres and GPU-as-a-Service, with mobile price repair underway across multiple Asian markets.

Challenges

Uncertainty over bond yields and inflation risk from the Middle East conflict keeps REITs under pressure. The Fed raised rates by 25 basis points to 3.75–4.00%, with further tightening likely, and rate expectations swung up 112 basis points from December 2025 to September 2026. Rising government bond yields have made Singapore equities less attractive, with the earnings yield spread over two-year bond yields at multi-year and one standard deviation lows, potentially capping overall market multiples.

Property stocks have de-rated due to interest rate worries, with high rates in Australia and the UK dampening valuations and asset monetisation efforts. Hospitals and consumer sectors face headwinds — insurance payers are pressuring healthcare providers on pricing, while consumer spending continues to reel from rising inflation. REITs fell 10% this year, with 17 REITs or trusts hitting new 52-week lows in a single week.

Outlook

Singapore equities trade at a premium 17x PE, above the historical average of 15x, but this is justified by growing earnings momentum across multiple sectors. The key risk is whether elevated bond yields begin to present headwinds. The Absolute 10 model portfolio rose 5.5% in 3Q26, underperforming the broader market’s 9.8% gain, with drags from profit-taking in Frencken and poor results from Sembcorp Industries.

Recommendation & Target Price

In the Absolute 10 model portfolio for 4Q26, Phillip Securities Research removed Stoneweg Europe Stapled Trust and added Singtel. The portfolio maintains overweight positions in banks, semiconductors, and oil and gas, while remaining underweight REITs, hospitals, and consumer sectors.

Frequently Asked Questions

Q: What is the EQDP, and why is it significant for Singapore equities?

A: The Equity Development Programme (EQDP) is a government initiative that has allocated S$6.5 billion to fund managers across multiple phases to invest in Singapore equities. It has served as a structural catalyst for small-mid cap stocks, driving institutional participation, higher-conviction ownership, and a nearly five-fold increase in Singapore-dedicated equity fund assets under management over eight months.

Q: Which sectors does Phillip Securities Research favour for 4Q26?

A: The report is positive on banks (pricing power from rising rates and loan volume growth), semiconductors (early-stage earnings upcycle and EQDP target), oil and gas (energy security revival, firmer prices, and tight vessel supply), and construction (building materials and dormitories, with Terminal 5 awards driving order momentum).

Q: Why was Singtel added to the Absolute 10 portfolio?

A: Singtel offers structural earnings and monetisation drivers through data centres and GPU-as-a-Service (GPUaaS). Mobile price repair is underway in Australia, India, the Philippines, Thailand, and eventually Singapore. Asset monetisation efforts may extend to Optus, Nxtera listing, and India data centres, with GPUaaS potentially delivering annual EBITDA of S$200 million when fully deployed.

Q: Why are REITs underweight in the portfolio?

A: Uncertainty over bond yields and inflation risk from the Middle East conflict make REITs unattractive. The Fed raised rates to 3.75–4.00% with further tightening likely, and 17 REITs or trusts hit 52-week lows in a single week. REITs are negatively geared to higher interest rates and exposed to inflation worries.

Q: How did the Absolute 10 model portfolio perform in 3Q26?

A: The portfolio rose 5.5%, underperforming the broader Singapore market's 9.8% gain. DBS (+18.5%), OCBC (+29%), and Geo Energy (+31.2%) were outperformers, while drags came from Frencken (-12.7%), Sembcorp Industries (-8.8%), CDL (-4.9%), and Stoneweg Europe Stapled Trust (-3.9%).

Q: What are the key risks to Singapore equities?

A: Rising government bond yields have compressed the earnings yield spread over two-year bond yields to multi-year lows, potentially capping market multiples. The Middle East conflict poses inflation risks, and expectations of further rate hikes add uncertainty. Consumer spending faces headwinds from rising inflation, and healthcare providers face pricing pressure from insurance payers.

Q: Why does the report view rising bond yields as non-threatening to economic growth?

A: Higher yields are seen as mirroring improving economic conditions rather than signalling a bond rout. Aggressive AI-driven capital expenditure is accelerating corporate demand for capital. Liquidity remains ample with a growing US$8 trillion in money market funds, and inflation expectations are muted.

Q: What is the outlook for Geo Energy?

A: With infrastructure completed, earnings visibility has been de-risked. FY27 is expected to be a milestone, with forecast production of 17 million MT (a 40% increase), declining cash costs, higher infrastructure fees, and coal prices up 60% year-on-year. The completion of a partial sale of infrastructure and long-term off-taker agreements are further share price drivers.

This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.

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About the author

Paul Chew

Paul has more than 25 years of experience as a fund manager and sell-side analyst. He currently covers sectors such as healthcare, electronics, telecommunications, conglomerates, small caps, and strategy.

He graduated from Monash University and has completed both his Chartered Financial Analyst and Australian CPA programme.

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