Six themes shaping Singapore's H2 equity bets

El Niño, AI capex and a stronger Singapore dollar reshape where returns come from.

Singapore's equity market is being shaped by six distinct investment themes heading into the second half of 2026, according to RHB.

The house identified financials, food security, AI infrastructure, the Singapore dollar's safe-haven status, real estate investment trusts and small-to-mid cap data centre stocks as the key areas of opportunity.

On financials, RHB said market swap pricing suggests the current US Federal Reserve funds rate would hold steady, with a bias for a potential hike later in the year that could be positive for net interest margins. The house said investors should view banks primarily as an income and capital return allocation rather than a growth play, with potential upside from the rate debate.

On food and inflation, RHB flagged two converging forces. Headline inflation is expected to accelerate to around 4% in the second half of 2026 on the delayed effect of higher energy prices.

Separately, an El Niño system is building towards a potentially strong event, with an 88% probability of peaking between November 2026 and January 2027, threatening palm oil yields and food prices. In previous strong El Niño periods, yields declined by 14% to 17% with a one-year lag, and crude palm oil prices rose by up to 29% in the 12 months after the event ended.

RHB rated the consumer sector overweight for its defensive qualities, particularly in grocery retail.

On AI, RHB described the AI capital expenditure cycle as the single most powerful driver of Singapore's external growth, pointing to electronics non-oil domestic export growth of 94.8% year-on-year, global semiconductor sales on track to surpass $1.29t (US$1t) in 2026, and manufacturing PMI at 51.3 in June, its 11th consecutive month of expansion.

The house expects full-year industrial production growth of 7%, with an upside bias, and said performance is expected to be sequentially stronger in the second half as customer orders accelerate.

On the Singapore dollar, RHB's economics team characterised it as a regional safe-haven currency, supported by a current account surplus of $41.1b in the first quarter of 2026 and official reserves of $551.3b as of June 2026.

The house expects the US dollar to Singapore dollar rate to decline from 1.31 to 1.27 by the second quarter of 2027.

RHB cautioned, however, that Singapore dollar strength would present headwinds for medical tourism and hospitality as a stronger currency diverts price-sensitive tourists to cheaper regional destinations, and said the strategy favours domestic earners over externally-exposed names where currency appreciation is a margin headwind.

On REITs, RHB said its view is turning structurally positive on the outlook, noting that REITs are the only sector in MSCI Singapore with negative price returns alongside positive earnings revisions. Industrial and office REITs were rated overweight, citing PMI expansion, prime CBD occupancy at 97% and limited core CBD supply. Retail and hospitality REITs were rated neutral.

The house said the declining Singapore 10-year bond yield, expected to fall from 2.02% to 1.9% by the second quarter of 2027, and SORA easing to 1% by the fourth quarter of 2026, provide a structural tailwind across the sector. RHB said the divergence between its view of a Fed funds rate hold and the market's pricing of approximately 1.4 hikes creates an asymmetric opportunity.

On small and mid-cap stocks, RHB identified the data centre and AI infrastructure buildout as a structural opportunity, pointing to companies with exposure to electrification, enterprise payroll solutions and cable supply to Singapore's data centres as names with compelling valuations and earnings growth profiles outside the core sector frameworks.