Executive Summary

Singapore equities experienced three notable episodes of selling in 2026: sustained weakness in Singapore REITs, a sharp October correction in the three local banks, and subsequent declines in semiconductor-related stocks. Although rising global interest rates contributed to market uncertainty, the transmission mechanisms differed across sectors. REITs faced yield-repricing and refinancing concerns, banks encountered questions over earnings sustainability, and technology stocks experienced a reassessment of future growth expectations.

The more important question is whether these declines represent a broader deterioration in Singapore corporate fundamentals or a repricing of otherwise resilient businesses. Singapore’s relatively favourable domestic interest-rate environment provides some support, but risks remain in bond-like income stocks, highly rerated industrial companies and AI-related data-centre investments.

Three Waves of Selling, Three Different Valuation Pressures

The sequence of market declines highlights how changes in required returns can affect businesses with very different operating characteristics.

Sector	Evidence of selling	Primary valuation concern
Singapore REITs	Sector price declines exceeded 10% year-to-date by 14 September	Distribution yields, refinancing costs and property valuations
Banks	DBS -4.7%, OCBC -4.3% and UOB -5.2% on 8 October	Sustainability of profitability and dividend expectations
Technology	AEM -9.9%, UMS -10.0% and Frencken -6.4% on 15 October	AI investment returns and future earnings growth

Market observations are based on the specified dates, not cumulative sector returns over identical periods. UMS’s decline also partly reflected ex-dividend trading.

REITs: Income Valuations Under Pressure

Singapore REIT weakness preceded the Federal Reserve’s September rate increase. By the end of August, the S&P Singapore REIT Index had lost approximately 6.9% year-to-date on a price-return basis, with the decline widening to approximately 10.5% by 14 September.

Two mechanisms matter. Higher refinancing costs can reduce distributable income, while competition from bonds can increase the distribution yield investors require. Even with unchanged rental income, a higher required yield implies a lower unit price.

However, this does not establish sector-wide deterioration in property fundamentals. Asset quality, geography, rental growth, debt maturity and hedging arrangements remain important differentiators.

Banks: Earnings Expectations Face Reassessment

The October bank correction followed substantial share-price appreciation and elevated profitability expectations.

On 7 October, OCBC declined 5.9%, while DBS and UOB fell 1.4% and 2.9% respectively. Selling intensified on 8 October, when the Straits Times Index dropped 3.5% to 5,412.96 points.

Higher interest rates do not necessarily improve bank earnings. The outcome depends on how lending yields, deposit funding costs, loan demand and credit conditions evolve.

The correction therefore raised questions about the sustainability of margins and earnings after a strong rally, rather than conclusively demonstrating fundamental weakness across the banking sector.

Technology: The Cost of Future Growth

Singapore semiconductor-related companies experienced substantial declines on 15 October amid international concerns about AI infrastructure investment.

The key issue was whether expectations for sustained computing investment and semiconductor demand had become too optimistic, particularly as financing costs increased.

Nevertheless, strong demand reported by major global semiconductor companies suggests that share-price weakness should not automatically be interpreted as an immediate industry downturn. Valuation compression can precede, or occur without, a deterioration in operating performance.

Singapore’s Interest-Rate Divergence Changes the Analysis

The Federal Reserve raised its target range by 25 basis points to 3.75–4.00% in September 2026. Singapore’s three-month compounded SORA, however, stood at approximately 1.24% in mid-October, compared with around 1.03% in April and approximately 3.5% in September 2024.

Singapore’s monetary policy framework is centred on managing the Singapore dollar exchange rate rather than setting a conventional domestic policy interest rate.

Consequently, Singapore borrowing costs have not mirrored the US interest-rate cycle.

This distinction matters for domestic businesses, particularly REITs with Singapore-dollar floating-rate borrowings or opportunities to refinance at relatively favourable rates.

Yet lower domestic financing costs do not eliminate equity valuation risk.

International investors compare prospective returns across asset classes and jurisdictions. Higher global bond yields may increase required equity returns, reducing the valuations investors are prepared to pay even when corporate earnings remain resilient.

The cost of financing a business and the return investors demand from owning its equity are related, but distinct, considerations.

This helps explain how Singapore stocks can experience valuation pressure without a corresponding increase in domestic borrowing costs.

Where Could Valuation Pressure Spread Next?

Three investment categories warrant closer examination. Their vulnerabilities are different, and none should automatically be considered the next sector to experience a major correction.

1. Bond-Like Income Stocks: Stable Distributions, Variable Valuations

NetLink NBN Trust is a useful example of a business with relatively predictable cash flows, supported by regulated fibre-network infrastructure and recurring connectivity demand.

Its annual distribution increased from 5.13 cents per unit in FY2022 to 5.42 cents in FY2026.

Assuming its annual distribution remains at 5.42 cents, the implied unit price changes materially with investors’ required yield:

Required yield	Implied unit price
5.5%	98.5 cents
6.0%	90.3 cents
7.0%	77.4 cents

Illustrative yield-based valuation, not a price forecast. Assumes unchanged distributions.

This demonstrates how relatively stable income can undergo substantial valuation repricing.

Other dividend-paying businesses, including QAF and Keppel Infrastructure Trust, may display some bond-like characteristics, but their risks differ. QAF faces operating cost pressures and consumer-market competition, while infrastructure trusts can carry substantial debt and reinvestment obligations.

Importantly, Singapore government bond yields remain substantially below comparable US Treasury yields. The case for a broad sell-off in Singapore’s bond-like equities is therefore not established by US interest-rate developments alone.

2. Industrial and Infrastructure Stocks: Strong Fundamentals, Higher Valuation Expectations

ST Engineering and Keppel illustrate a different vulnerability: substantial valuation rerating following improvements in business performance and investor confidence.

ST Engineering’s forward P/E increased from approximately 19 times at end-2024 to around 31 times in September 2026.

The operating improvement has been meaningful. In 1H2026, revenue increased 11% to S$6.57 billion, net profit rose 27% to S$512 million, and the order book reached S$35.7 billion.

Keppel’s forward P/E similarly increased from approximately 13 times to 22 times over the same reference period.

Its transformed core businesses generated S$530 million in first-half profit, up 25%, while recurring income rose 13%. Funds under management reached S$106 billion by end-July.

These valuation increases partly reflect genuine business improvements. Nevertheless, higher multiples also raise the level of future earnings growth required to justify current prices.

The risk is therefore not necessarily operational deterioration. Strong companies can experience multiple compression when expectations become too demanding.

Historical forward-P/E comparisons are approximate, estimate-based valuation snapshots, rather than current price targets.

3. AI Data-Centre Investments: Tenant Credit Risk Beyond Conventional REIT Exposure

Data-centre REITs introduce a different risk from the initial REIT sell-off.

The central question is whether the businesses financing rapid AI infrastructure expansion can sustain their contractual obligations.

US-listed AI cloud provider CoreWeave reported approximately US$35.6 billion in debt at June 2026, alongside substantial investment-related cash outflows. Concerns over its financing requirements have increased investor scrutiny of highly leveraged AI infrastructure operators.

The potential impact on landlords is illustrated by Core Scientific, which generated approximately 77% of its first-half 2026 revenue from CoreWeave.

Long-term contracts provide revenue visibility, but concentrated exposure to a financially stressed customer can create material counterparty risk.

For Singapore-listed data-centre REITs, including Keppel DC REIT, Digital Core REIT and NTT DC REIT, the relevant considerations are tenant creditworthiness, concentration, lease protection and exposure to AI-dependent customers.

This does not imply equivalent risk across these REITs. Keppel DC REIT, for example, reported 11.3% year-on-year DPU growth in 1H2026, supported by organic growth and acquisitions.

The reported postponement of AirTrunk’s planned Singapore REIT IPO in October nevertheless suggests increasing investor sensitivity to AI infrastructure valuations and financing conditions.

The distinction is critical: conventional REIT risk centres on financing and required property yields; AI-related data-centre risk also includes the financial sustainability of underlying tenant demand.

---

Key Risks & Mitigating Factors

• Further global interest-rate increases: Higher required returns could produce additional equity valuation compression. Singapore’s comparatively low domestic rates provide some support, although this divergence is not guaranteed to persist.
• Earnings and distribution deterioration: Higher funding costs, weaker economic activity or reduced demand could undermine income sustainability. Debt hedging and staggered maturities provide partial protection, varying by company.
• Elevated valuation expectations: Strong earnings momentum may already be substantially reflected in share prices. Continued operating growth can support valuations, but disappointment increases derating risk.
• AI infrastructure counterparty risk: Financially stretched operators could affect data-centre landlords through tenant concentration or weaker expansion demand. Established tenants, contractual protections and diversified customer bases may mitigate exposure.
• Uneven fundamentals within sectors: Sector-level declines can obscure substantial differences in financial resilience. Company-specific cash flows, balance sheets and valuations remain more informative than broad classifications.

---

The Dividend Uncle Research View

The available evidence points more towards a period of valuation adjustment than a broad deterioration in Singapore corporate fundamentals, although material differences remain between companies.

Singapore’s relatively favourable financing environment and the debt protection maintained by many REITs provide reasons against an indiscriminately pessimistic interpretation.

At the same time, stable distributions do not eliminate valuation risk, strong earnings growth does not automatically justify elevated multiples, and long data-centre leases cannot substitute for financially sound tenants.

The central investment distinction is therefore between lower prices that improve prospective returns on resilient cash flows and lower prices that reflect genuinely deteriorating earnings or distributions. Continued monitoring of domestic borrowing costs, corporate earnings and distribution trends will be essential to determining which outcome prevails.

---