Executive Summary
Singapore’s financial markets stand at a critical juncture in 2026, caught between two powerful global forces: the trajectory of artificial intelligence spending and the Federal Reserve’s monetary policy. While U.S. tech hyperscalers are expected to invest over $500 billion in AI infrastructure this year, the sustainability of this spending boom remains uncertain. However, analysts at BCA Research and Maybank suggest that even if AI capital expenditure slows, accommodative monetary policy from the Fed could offset potential market weakness.
For Singapore, a small but globally integrated economy, these dynamics carry special significance. The city-state’s Straits Times Index (STI) is projected to reach 5,600 in 2026, supported by AI-related productivity gains, structural reforms, and attractive valuations. This article examines how these global trends will ripple through Singapore’s economy, from data center REITs to tech enablers, and what investors should watch.
The Core Thesis: Why Stocks Could Keep Rising Despite Slowing AI Capex
The sustainability of AI spending has emerged as one of Wall Street’s biggest concerns heading into 2026. Historical patterns suggest danger ahead. Tech capital expenditure as a percentage of GDP is approaching levels that marked previous cycle peaks, including the personal computing boom of the 1980s, the Dotcom bubble of the 1990s, and the post-pandemic “Zoom boom.”
Typically, tech stocks begin underperforming about a year before capex peaks. If this pattern holds, AI-focused stocks face imminent risk. However, BCA Research strategist Dhaval Joshi argues this cycle may differ thanks to interest rate dynamics.
The Real Yield Factor
The key insight centers on real bond yields, which represent inflation-adjusted returns. During the 2021 post-pandemic boom, tech stocks maintained their position despite rising inflation because real yields kept declining. Only when the Fed’s aggressive rate hikes drove real rates higher in 2022 did tech stocks crash.
Today’s environment looks different. With the Fed signaling further rate cuts rather than hikes, real yields could decline even if inflation remains around 3%. This combination of falling nominal rates and sticky inflation would create favorable conditions for stock valuations, potentially supporting markets even as AI spending moderates.
Singapore’s Unique Position in the Global AI Ecosystem
Unlike the United States, Singapore doesn’t host the hyperscale tech giants driving AI investment. Instead, the city-state positions itself as critical infrastructure for Asia’s digital economy. This “picks-and-shovels” approach to AI creates both opportunities and vulnerabilities.
Economic Resilience Supported by AI-Related Capex
According to Maybank Research, Singapore’s GDP growth is forecast at 2.8% in 2026, supported by three key pillars:
- AI-related capital expenditure: Global AI infrastructure buildout benefits Singapore’s semiconductor supply chain, data center operators, and telecommunications infrastructure
- Low interest rates: Fed rate cuts transmit through to Singapore’s monetary conditions, supporting economic activity
- Construction boom: Infrastructure projects, including data center development, drive domestic growth
The broader ASEAN-6 region is projected to grow at 4.6% in 2026, with AI spending, easing monetary policy, and rising foreign direct investment helping cushion tariff impacts and driving tech exports and energy demand.
The Transmission Mechanism: How Fed Policy Affects Singapore
Singapore’s monetary policy operates differently from most countries. The Monetary Authority of Singapore (MAS) manages the Singapore dollar exchange rate against a basket of currencies rather than setting domestic interest rates directly. Nevertheless, U.S. rate decisions quickly filter into Singapore’s financial system.
When the Fed cuts rates, several channels activate:
Capital Flows: Lower U.S. yields push capital toward higher-yielding assets in Asia, including Singapore equities and bonds. JPMorgan analysts note that a S$70 billion cash pile could potentially rotate from deposits into equities in 2026, providing a supportive backdrop for the local market.
Currency Effects: Fed rate cuts typically weaken the U.S. dollar relative to other currencies, including the Singapore dollar. A stronger SGD benefits Singapore by reducing import costs for goods priced in dollars, from groceries to electronics.
Borrowing Costs: Singapore’s home loans are typically pegged to the Singapore Overnight Rate Average (SORA), which tends to move in line with U.S. interest rates. As the Fed cuts, monthly mortgage payments decline, freeing up consumer spending.
Real Estate: Lower rates support property demand, though Singapore’s cooling measures and increased housing supply make another runaway surge unlikely. The focus shifts toward stability rather than bubble dynamics.
Singapore’s AI Stock Landscape: Infrastructure Over Innovation
For investors scanning the Singapore Exchange (SGX) for “AI exposure,” the story centers on companies that power, house, test, and distribute AI compute rather than pure-play AI model developers. This infrastructure focus creates different risk-reward dynamics compared to U.S. tech stocks.
Data Center REITs: The Cleanest AI Infrastructure Play
Data center REITs represent one of the most direct ways to gain exposure to AI infrastructure demand on SGX. AI workload growth typically requires more space, higher power density, and advanced cooling capabilities, all of which benefit data center operators.
Keppel DC REIT (AJBU): Singapore’s first pure-play data center REIT maintains a diversified portfolio across Europe, Australia, Asia, and China (notably excluding the U.S.). In November 2024, Keppel announced the acquisition of two Singapore data centers (KDC Singapore 7 and 8) for up to S$1.38 billion. The deal increases Singapore property exposure to 65.5% and is expected to boost distributable per unit (DPU) by 8.1% to 11.1%. The REIT rejoined the Straits Times Index in June 2025, signaling its importance to the local market. Current trading around S$2.19 reflects both growth prospects and vulnerability to any AI spending slowdown.
Digital Core REIT (DCRU): Sponsored by Digital Realty, the world’s largest data center owner and operator, Digital Core focuses entirely on data center assets. The REIT owns 10 facilities with assets under management of US$1.4 billion, concentrated in the U.S., Frankfurt, and Osaka. Portfolio occupancy stood at 93% as of September 2024 with a weighted average lease expiry of five years. The REIT reported mixed earnings in the first nine months of 2024, with revenue and net property income declining but distributable income rising 9.7% year-on-year. At a gearing ratio of 34.8%, Digital Core maintains approximately US$100 million in debt headroom.
Mapletree Industrial Trust (MIT): While not a pure data center play, MIT derives close to 56% of its S$9.2 billion portfolio from data centers spread across the U.S., Japan, and Singapore. The industrial REIT reported modest growth in Q3 FY2025, with gross revenue up 2% and DPU increasing 1.5%. However, JP Morgan analysts downgraded MIT from ‘Overweight’ to ‘Underweight’ in February 2025, citing tenant vacancy concerns in its U.S. data center portfolio that could result in a 5-6% revenue decline.
Telecommunications and Cloud Infrastructure
Singtel (Z74): Singapore’s dominant telecommunications operator increasingly positions itself as an AI enabler through data center buildout and enterprise cloud services. The company’s Nxera subsidiary focuses on regional data center services, with plans to operationalize over 200 megawatts of capacity by the end of 2026, starting in Singapore before expanding to Thailand, Malaysia, and Indonesia.
Singtel’s AI strategy includes:
- Collaboration with Nvidia to build accelerated computing data centers using Nvidia GPUs
- Introduction of GPU-as-a-Service (GPUaaS) enabling enterprises to access AI capabilities
- Partnership with major global telcos (Deutsche Telekom, SoftBank, SK Telecom, e&) in Syntelligence AI Ltd., a joint venture focused on telco-specific AI applications
- Trial deployment of ultra-fast 50Gbps fiber broadband to support AI-enabled home networks
DBS Research identifies Singtel’s 2026 catalysts as doubling data center capacity in early 2026 and potential stabilization in Singapore mobile average revenue per user (ARPU). The stock has risen approximately 45% over the past year, trading around S$4.46 with underlying net profit up 14% year-on-year in the first half of FY2026. Singtel maintains a dividend yield of approximately 4.1%.
Technology and Engineering
ST Engineering (S63): This diversified industrial conglomerate represents applied AI rather than infrastructure. The company’s AI exposure comes through analytics, smart systems, and mission-critical technology across urban solutions, defense, and aerospace segments. ST Engineering has experienced remarkable momentum, with year-to-date performance up 77.20% and one-year returns of 75.32%. However, the stock pulled back 3.22% in recent trading to S$8.71, suggesting profit-taking after the strong run.
JPMorgan named ST Engineering among its seven Singapore top picks for 2026, alongside DBS, Keppel, CapitaLand Integrated Commercial Trust (CICT), City Developments Limited (CDL), and Sea. The company trades at a premium PE ratio of 37.38 versus the Singapore Industrials average of 16.03, reflecting growth expectations but increasing sensitivity to missed beats.
Sea Limited (SE): The Southeast Asian e-commerce and gaming giant has seen its stock corrected sharply, prompting Maybank to upgrade it to BUY in January 2026. Analysts argue the correction is overdone, with key risks largely priced in. Sea’s Shopee platform benefits from strategic investments and market rationalization that provide monetization upside. While founder Forrest Li has warned of a difficult transition to AI and remained reticent on specific plans, the company maintains its position as a key AI adopter in Singapore’s ecosystem. Current target price stands at USD156.
Grab Holdings: The ride-hailing and delivery platform represents another key AI adopter in Morgan Stanley’s assessment of Singapore’s AI ecosystem. Grab leverages AI for route optimization, demand prediction, and fraud detection across its Southeast Asian operations.
Semiconductor Supply Chain
AEM Holdings (AWX): This precision equipment manufacturer serves the semiconductor testing market. Trading around S$1.64, AEM provides exposure to the global chip cycle, with consensus targets around S$1.67. The company’s fortunes are tied to advanced semiconductor manufacturing, particularly memory chips critical for AI applications.
UMS Integration and Micro-Mechanics: These precision engineering firms support semiconductor equipment manufacturing. While smaller players, they benefit when the global semiconductor cycle strengthens, particularly for testing and advanced manufacturing support.
The Inflation Wild Card: Could AI Spending Fuel Its Own Demise?
A growing concern among money managers is that the same forces supporting markets—government stimulus, continued AI investment, and accommodative monetary policy—could push inflation higher again, forcing central banks to halt rate cuts or even resume tightening.
The Inflationary Nature of AI Infrastructure
Deutsche Bank estimates AI data center capital spending could reach $4 trillion by 2030, raising the risk of supply bottlenecks in chips and power. This massive spending creates inflationary pressure through several channels:
Memory Chip Cost Inflation: HP Inc expects higher memory chip costs tied to data center demand to weigh on prices and profits later in 2026. George Chen, a partner at consultancy Asia Group and former Meta executive, warns that memory chip cost inflation will push up prices for AI groups, lower investors’ returns, and eventually reduce money flow into the sector.
Power and Water Constraints: Data centers consume enormous resources. A mid-sized facility uses approximately 300,000 gallons of water daily to cool servers, equivalent to 100,000 homes. Global water consumption from data centers grew from 738 million liters in 2015 to over 840 million liters in 2021. The International Energy Agency expects global electricity demand from data centers to double toward 2026.
Singapore’s Resource Challenge: These constraints hit Singapore particularly hard. While the city-state ranks as one of Asia-Pacific’s top three data center markets, it lacks sufficient power, water, and land. Singapore imposed a moratorium on new data center construction, later lifting it with strict conditions. In May 2024, authorities announced plans to release at least 300MW of additional capacity, with another 200MW available for operators adopting green energy solutions under the Green Data Centre Roadmap.
The Central Bank Dilemma
If inflation resurges due to AI-driven resource constraints, central banks face an impossible choice between supporting growth and controlling prices. Trevor Greetham, head of multi-asset at Royal London Asset Management, warns: “You need a pin that pricks the bubble, and it will probably come through tighter money.” While still holding large tech stocks, he wouldn’t be surprised to see inflation surge globally by the end of 2026.
Tighter monetary policy would sap appetite for speculative technology stocks, raise funding costs for AI projects, and squeeze profits. For Singapore, this scenario would be particularly challenging given the economy’s dependence on external financing conditions.
Investment Implications for Singapore Investors
What Works in a Slowing AI Capex Environment
If AI spending moderates but monetary policy remains accommodative, certain Singapore stocks are better positioned than others:
Long-Duration Contracts: Data center REITs with multi-year leases provide stability even if new AI investment slows. Keppel DC REIT’s five-year weighted average lease expiry offers protection, while Digital Core’s 93% occupancy provides a cushion.
Diversified Revenue Streams: Companies like Singtel and ST Engineering that derive revenue from multiple sources beyond pure AI infrastructure face less binary risk. Singtel’s core telecommunications business, enterprise ICT services, and associate dividends from Bharti Airtel and AIS provide stability.
Value Over Growth: As growth stocks potentially stall, dividend-yielding blue chips become more attractive. Maybank’s 2026 investment themes emphasize higher capital returns through dividends and buybacks. DBS Group offers approximately 5.2% dividend yield, while OCBC and other banks provide income alongside financial stability.
Sector Rotation Opportunities
JPMorgan’s Asia outlook for 2026 explicitly describes the case for diversification away from crowded global technology and AI trades. If U.S. tech mega-caps stumble, Singapore’s market could benefit from rotation into:
Real Estate Investment Trusts: Beyond data centers, Singapore REITs offer yields in the 4-6% range. Lower interest rates support valuations while making fixed-income alternatives less attractive. CapitaLand Integrated Commercial Trust (CICT), Mapletree Logistics Trust (MLT), and Suntec REIT feature among Maybank’s top picks.
Banks: Singapore’s three major banks (DBS, OCBC, UOB) benefit from economic stability, solid capital positions, and steady dividend growth. While net interest margins face pressure from lower rates, loan book growth and wealth management revenues provide offset.
Industrial and Logistics: Properties supporting e-commerce, manufacturing, and distribution benefit from continued digitalization and supply chain reshoring under China+1 strategies.
Risks to Monitor
Geopolitical Uncertainty: Reuters reports Chinese AI companies relocating to Singapore to manage credibility risks. While this brings capital and talent, it also raises scrutiny questions. Additionally, U.S. export controls on advanced semiconductors could disrupt Singapore’s semiconductor supply chain.
Property Market Vulnerability: Lower mortgage rates could reignite property speculation despite government cooling measures. Affordability concerns persist even as rates decline.
Currency Volatility: While a stronger SGD benefits imports, it hurts export competitiveness. Singapore’s open economy remains vulnerable to sharp capital flow reversals.
Regional Competition: Malaysia, Thailand, and Indonesia are aggressively courting data center investment with cheaper power and more available land. Singapore must compete on reliability, connectivity, and regulatory stability rather than cost.
2026 Outlook: Navigating Uncertainty
Base Case: Soft Landing with Continued Support
Maybank’s STI target of 5,600 implies approximately 18% upside from current levels around 4,745. This optimistic scenario assumes:
- GDP growth of 2.8% supported by AI-related capex, construction, and services
- Continued Fed rate cuts driving real yields lower
- Structural reforms unlocking value in large-cap and small/mid-cap stocks
- AI-driven productivity gains improving corporate margins
- Market structure enhancements boosting retail participation and IPO activity
Key investment themes include faster large-cap reforms, value unlocking for small and mid-caps, expanding AI use cases, and MAS reform implementation.
Alternative Scenarios
Bull Case – Sustained AI Boom: If AI monetization exceeds expectations and productivity gains materialize faster than anticipated, Singapore’s AI enablers could significantly outperform. Data center REITs would benefit from tighter supply-demand dynamics, while Singtel’s infrastructure investments would validate its premium valuation. This scenario requires AI applications generating sufficient revenue to justify continued infrastructure spending.
Bear Case – Hard Landing: If AI spending drops sharply while inflation remains elevated, forcing the Fed to maintain restrictive policy, Singapore faces headwinds. Data center vacancy rates would rise, particularly affecting operators with U.S. exposure like Digital Core REIT and Mapletree Industrial Trust. Real yields would increase, pressuring all equity valuations. The STI could stagnate or decline despite relatively attractive starting valuations.
Stagflation Scenario: The worst outcome combines slowing growth with rising inflation. Central banks couldn’t ease aggressively, leaving economies stuck between recessionary forces and price pressures. Singapore’s small, open economy would struggle in this environment, with limited domestic policy tools available.
Positioning for Success
Portfolio Construction
Core Holdings (60-70%): Establish positions in high-quality blue chips with sustainable dividends: DBS Group, OCBC Bank, Singtel, ST Engineering, and CapitaLand Integrated Commercial Trust. These companies offer stability, income, and exposure to Singapore’s structural growth drivers.
AI Infrastructure (15-25%): Gain targeted exposure to data center growth through Keppel DC REIT and selective positions in Singtel’s infrastructure buildout. These positions capture AI upside while maintaining reasonable valuations.
Opportunistic Positions (10-15%): Allocate to higher-beta names that could benefit from specific catalysts: Sea Limited following its correction, small-cap reforms, or sector-specific developments. Maintain flexibility to rotate as conditions change.
Cash Buffer (5-10%): Keep dry powder for volatility. If markets experience an AI-related correction or macro shock, deploy capital into quality names at better valuations.
Tactical Considerations
Monitor Fed Communications: Every FOMC meeting and economic data release matters. Stronger-than-expected inflation or labor market resilience could slow the pace of rate cuts, pressuring growth stocks. Conversely, economic weakness could accelerate easing, supporting valuations.
Track AI Spending Data: Quarterly earnings from U.S. hyperscalers provide critical signals about AI capex trends. Microsoft, Alphabet, Amazon, Meta, and Oracle guide the direction. When these companies report slowing growth rates or margin pressure, Singapore’s AI enablers face headwinds.
Watch Data Center Metrics: Occupancy rates, rental reversions, and new supply announcements in key markets provide early warning signals. Rising vacancy in U.S. data centers particularly matters for Singapore REITs with American exposure.
Currency Movements: Track USD/SGD exchange rates. A rapidly strengthening Singapore dollar could signal capital inflows and accommodative conditions, while sharp weakening might indicate risk-off positioning.
Conclusion: Prepared Optimism
Singapore’s market outlook for 2026 combines genuine structural strengths with legitimate cyclical concerns. The city-state’s position as Asia’s digital infrastructure hub provides exposure to one of the decade’s most important technological shifts. Simultaneously, its dependence on external financing conditions and global trade flows creates vulnerability to macro shocks.
The key insight from BCA Research—that accommodative monetary policy can offset slowing AI capex—offers comfort but not certainty. Much depends on inflation dynamics, which remain unpredictable given the scale of ongoing AI infrastructure investment. If inflation stays benign while the Fed cuts rates, real yields decline and support stock valuations. If inflation resurges, central banks face difficult choices that could derail the equity rally.
For Singapore investors, the path forward requires balancing optimism about AI’s long-term potential with caution about near-term valuation and macro risks. Focus on quality companies with sustainable business models, reasonable valuations, and strong balance sheets. Prioritize dividend income alongside capital appreciation. Maintain diversification across sectors and stay alert to rotation opportunities as conditions evolve.
The unprecedented nature of the AI buildout means historical patterns provide imperfect guidance. Singapore’s markets may outperform if the city-state successfully positions itself as indispensable infrastructure for Asia’s digital economy. Alternatively, they may struggle if global AI enthusiasm wanes faster than monetary policy can compensate.
What’s certain is that 2026 will test investors’ ability to navigate complexity, manage uncertainty, and distinguish between companies riding temporary enthusiasm and those building enduring competitive advantages. In Singapore’s market, as globally, preparation and discipline will matter more than predictions and speculation.
This analysis is based on market data and analyst reports as of January 14, 2026. Market conditions can change rapidly. Investors should conduct their own research and consider their personal financial circumstances before making investment decisions.