“The energy supply shock caused by the conflict in the Middle East has shifted the tone for Asian equities as higher energy prices lift input costs, weigh on margins and may change the course of monetary easing across the region,” van der Linde and his analysts write.
According to HSBC, growth expectations have yet to price in the risks posed by a sustained disruption from the war in Iran. While the analysts expect there to be “heightened volatility” across the region, the increased uncertainty will not become a “structural derailment” of the Asian growth story.
Aside from upgrading Singapore, HSBC has raised its outlook for Taiwan to neutral from underweight. On the other hand, the bank downgraded its outlook for Indonesia to underweight from neutral and India to neutral from overweight. HSBC has maintained its overweight rating for China and Hong Kong, its neutral rating for Japan, Malaysia and the Philippines and its underweight rating for Korea and Thailand.
“The challenge is that there aren’t many obvious alternatives right now – Japan, Korea and India are net oil importers – and while Malaysia and Singapore can continue to be more defensive, those two markets are relatively small,” the analysts write.
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Singapore has a lot to bank on
In fact, it is against such a backdrop that makes Singapore equities so attractive, van der Linde and his colleagues write. “Singapore equities stand out for their defensive appeal, especially when growth elsewhere in Asean is weak.”
A large part of Singapore’s appeal lies in the profitability of its three big banks, DBS Bank (SGX:D05
) , the United Overseas Bank (SGX:U11) and the Oversea-Chinese Banking Corporation (SGX:O39) . The trio account for roughly half of the city-state’s flagship Straits Times Index (STI) by index weight.
“Credit quality for banks remains resilient and improving wealth management trends have helped sustain fee income,” HSBC writes. “A key element of the investment case for Singaporean banks is the prospect of more active capital management, particularly through special dividends and share buybacks.”
The city-state’s real estate sector is a potential bright spot as well given the redevelopment opportunities that property developers can tap on as part of the government’s Draft Master Plan 2025.
That said, the ongoing war in Iran could affect the outlook for rates. Surging oil prices will drive inflation, making it harder for central banks to cut rates. Van der Linde and his team note that these developments will be a source of uncertainty for the “interest-sensitive” banking and real estate sectors.
‘Value-up’ programs starting to bear fruit
That’s on top of the recent measures by policymakers to revitalise Singapore’s once sluggish stock market. In August 2024, the Monetary Authority of Singapore set up an Equities Market Review Group to come up with recommendations to boost the local bourse.
The group’s final report, which was published in November 2025, included proposals to channel capital via a $5 billion Equities Market Development Programme (EQDP) fund as well as a dual listing arrangement with the Nasdaq. On Feb 12, Prime Minister and Finance Minister Lawrence Wong announced in his Budget 2026 speech that he would be topping up the EQDP fund by $1.5 billion.
“These measures aim to improve the liquidity and valuations beyond those listed on the STI index,” says van der Linde and his colleagues in their report. “Singapore’s own ‘value up’ program can help reduce its persistent valuation discount to other markets.”
In fact, the measures have yielded promising results. Singapore’s IPO activity for 2025 was the highest since 2019, raising more than $2.4 billion in funding. Trading activity has gone up as well. In November, the average daily traded value of securities on the Singapore Exchange rose by more than 20% y-o-y to almost $1.8 billion, the highest since 2010.
“Consensus forecasts earnings are to recover in 2026, pencilling in 6% growth,” van der Linde and his team write in their report. “Equity valuations are not overly cheap, yet we think they will stay well supported for reasons cited earlier.”
