Moderately constructive stance for equities
Moderately constructive stance for equities
Following a robust rally, equities may be primed for a period of correction or consolidation, but we see these as opportunities to build on strategic positions, focusing on the dominant secular growth themes.
Eli Lee
Managing Director,
Chief Investment Strategist,
Bank of Singapore
Amid a diverging global growth outlook in 2H2026, we maintain a constructive stance on equities: overweight the US, underweight Europe, and neutral elsewhere. After a strong rally, markets may correct or consolidate; we see these phases as opportunities to add to strategic positions, especially in secular themes: artificial intelligence (AI) and Security & Resilience (S.E.C.U.R.E.). As nations compete for technological and industrial leadership, Information Technology and Communication Services should remain core holdings. Materials and Utilities are key to the global capex cycle and appear attractively valued. In Asia ex-Japan, we favour Hong Kong, China, and Singapore on fundamentals and catalysts.
US – Strong corporate earnings growth
Despite macro challenges, companies delivered resilient 1Q2026 results. S&P 500 median EPS surprises reached a four-year high, with improving earnings revisions breadth. Key contributors to growth include Communication Services, Financials, IT, and Consumer Discretionary. In technology, higher capex, early AI monetisation, and agentic AI are expanding the winner set. We view AI as a durable tailwind, favouring semiconductors and internet over software. Our base case assumes the Trump administration seeks off-ramps in the US-Iran conflict, helping markets look through elevated oil prices. Meanwhile, 10-year US Treasury yields remain just below 4.5%, with manageable rate volatility.
Europe – Challenging times
As Europe’s macro backdrop deteriorates, with weaker growth and rising inflation risks, we adopt a more stagflation-aware stance. We favour inflation protection via Materials and Energy, alongside defensives such as Utilities and Telecoms. Within cyclicals, we are more selective, focusing on companies aligned with key secular themes: AI and S.E.C.U.R.E.. While fiscal stimulus may support Germany, it is premature to expect regional outperformance given structural challenges. In the UK, limited fiscal headroom and political uncertainty persist. Despite potential near-term relief from a US-Iran deal, structural headwinds keep us focused on quality, pricing power, and resilience.
Japan – Focus on structural themes
During the recent earnings season, company guidance points to around 5% revenue and 12% earnings growth in FY2026, led by the electrical machinery industry. However, autos, food, transportation and logistics, and utilities face weaker outlooks amid high oil prices. Despite a Neutral stance on Japan, opportunities remain in AI, technology hardware, defence, critical resources, and financials, while real estate, transport, and utilities are less preferred due to rising JGB yields.
Asia ex-Japan – Entering a stronger industrial upcycle
Parts of Asia remain exposed to US-Iran tensions due to energy dependence, but the region is entering a stronger, multi-year industrial capex cycle driven by AI, energy security, transition efforts, and defence spending. We see opportunities in Hong Kong, China, and Singapore equities, supported by structural growth and investment spillovers.
China/HK – Stabilisation in geopolitical relations
The May US-China Presidential Summit set a constructive and stable direction for bilateral relations over the medium term. Year-to-date, China’s onshore A-share market has outperformed offshore equities, led by strong gains in the tech-heavy STAR 50 Index. Performance has been concentrated, with IT leading while consumer staples lag. We maintain a preference for A-shares, where over two-thirds of market cap is in industrials and technology sectors aligned with innovation themes. Earnings growth for the CSI300 is projected at 23% in 2026, supported by robust industrial profit growth. We favour quality yield plays for stability and AI-related beneficiaries for upside potential.
Singapore – Market reforms to drive liquidity and re-rating
Singapore equities offer defensiveness and attractive yields, but we see re-rating potential in small and mid-caps, supported by initiatives such as the Equity Market Development Programme. Ongoing ecosystem enhancements — including the SGX–NASDAQ dual listing bridge and the Global Listing Board — may attract more growth-oriented listings beyond traditional sectors. A strong and stable Singapore Dollar further underpins the appeal of Singapore assets.
Global Sectors - Build on strategic positions during times of volatility
Global equities have reached new highs, but gains have narrowed into Growth, with AI-linked stocks driving a disproportionate share of returns, particularly in the US and parts of Asia. Sector dispersion remains elevated, notably in Europe. Energy and IT have outperformed, while Healthcare and Consumer Discretionary lag. We favour IT, Communication Services, Materials, and Utilities.
The AI theme continues to strengthen, supported by expanding use cases and progress in areas such as physical AI. However, given stretched valuations, geopolitical uncertainty, and crowding in Quality Growth and semiconductors, near-term consolidation risks remain. We see value in Energy and Materials as inflation hedges within a resilient growth backdrop. Investors should stay selective within cyclicals, focusing on companies aligned with AI and S.E.C.U.R.E., which we view as a durable structural driver of market dispersion.
In AI, diversification across a broader set of inference beneficiaries is increasingly important. We remain positive on semiconductors and internet companies, supported by strong compute demand and rising capex, which provides earnings visibility. As AI adoption expands, the opportunity set is broadening beyond GPUs to include ASICs, CPUs, storage, and networking - an enduring structural shift. We view market volatility as an opportunity to accumulate across these segments. Conversely, software may face subdued sentiment amid AI disruption concerns, though we see modest opportunities in cybersecurity, where AI can act as a complementary tailwind.
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