In 2024, real GDP quickened from roughly 3% to 4% while the Straits Times Index (STI) delivered a 24% total return, even as reported earnings growth came in at around 7%. The gap, says St Clair, is an artefact of consensus that remains “too pessimistic” on forward profits relative to the economy’s real growth and low inflation backdrop.
“We were sensing a decoupling between earnings and the macro,” he says, noting that forward earnings expectations for 2025 started the year near zero despite firming growth and contained prices. The thesis from here, he adds, is a “recoupling” in which quality earnings begin to catch up with the macro, aided by targeted policy moves that improve market vibrancy and liquidity.
“The fundamentals (the cake) has been very strong, and now we have policymakers pushing all the right buttons. That’s the icing on the cake,” he says.
The broader market
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Fullerton’s read is that two gears are meshing: a multi-year productivity upswing and policy measures aimed at listings, fund domiciliation and liquidity. The productivity gear is tied closely to three themes that dominate local investor interest: AI and productivity, clean energy, and biomedical. A survey Fullerton ran in April 2024 found Singapore equities ranked as the top “growth risk asset to buy” among respondents, with 80% saying they invest via themes. The top three were AI, clean energy and biomedical.
Budget measures have reinforced those focal areas, he says. He cites an additional $3 billion for the Total Productivity Fund, about $1 billion more for research and development, and a new semiconductor R&D and fabrication unit due to open, all designed to lift the quality of growth. He adds: “Singapore’s installed base of industrial robots per worker is already among the highest globally.”
This underlines an economy skewed to high value-added output and process automation. The net effect, says St Clair, shows up in “solid real growth, low inflation” and a still competitive export position despite a strong Singapore dollar.
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On the market plumbing side, St Clair points to tax incentives rolled out for new listings and asset managers who commit Singapore risk assets, plus the Equity Market Development Programme (EQDP) launched in July, which together aim to improve depth and participation on the Singapore Exchange (SGX). In his view, these steps enhance liquidity and support a vibrant market at a moment when the fundamentals can justify it.
The most notable shift in 2025 has been sector leadership. “People typically think financials dominate Singapore. Who’s the key performer this year? Industrials,” says St Clair. He attributes that to two drivers: the productivity story linked to AI adoption and a synchronised recovery in global manufacturing demand. He notes that industrials have been outperforming financials, offering a differentiated source of alpha for portfolios.
The breadth extends beyond industrials. Communications companies have been improving through cost control and productivity, while banks and property have re-rated alongside a meaningful decline in yields across the Singapore curve. “Loan growth is running ahead of GDP, net interest margins remain favourable and non-interest income is picking up,” he says of the banks. Lower discount rates and stronger lending have aided a rebound in real estate shares after a difficult 2024.
For investors nervous that Singapore lacks pure-play AI counters, St Clair suggests that may be a feature rather than a bug. “AI’s payoff in Singapore is economy-wide via process efficiency, automation and the industrial supply chain,” he says, not just semiconductor names. The way he sees it, that makes Singapore an option for diversification away from the concentration risks of global mega-cap tech, while still capturing the productivity and industrial upsides of AI adoption.
A frequent worry among investors is the tariff environment. St Clair’s take is that while the tariffs have injected uncertainty, the realised macro impact across Asia has so far been limited by strong manufacturing momentum and market-share defence. He flags global manufacturing growth running near 4% even as headline trade volumes softened, and argues that producers of high value-added goods have been able to hold prices, shifting volumes across markets when necessary.
China has pared exposure to the US while defending export prices, which means much of the tariff cost has been borne by the US consumer. In aggregate, Asia has navigated the stresses through competitiveness, productivity and diversification of end-markets. Singapore has maintained its global market share with relatively low direct exposure to the US, and benefits from a tariff profile that is comparatively favourable. “So far so good for Singapore,” he says, adding that tariffs are unlikely to derail risk-asset returns in Asia on current trends.
The broader message is that geopolitics will continue to throw up events but that sector and firm-level outcomes are divergent. Countries and companies with market power and differentiated products can negotiate the incidence of tariffs along the supply chain, preserving profitability in the process.
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If the macro is constructive and sector breadth is widening, why do forward earnings appear so downbeat?
St Clair points to the psychology of two volatile years and a series of geopolitical shocks that suppressed risk appetite. “The big swing factor is risk appetite,” he says. In his framework, the key signpost is the trajectory of earnings revisions for the next 12 to 18 months. He notes that a blended forward number that was below 5% earlier this year has been moving towards 7% as the year progresses, in line with the macro “recoupling” he expects to persist.
He also thinks local investors are more sophisticated than they are often given credit for. The same survey that highlighted thematic preferences also showed balanced asset allocation and long-term goals around retirement income and wealth accumulation. “These behaviours support a steady rebuilding of risk appetite as fundamentals deliver and the fear of missing out returns,” he says. “That process takes time.”
Beneath the STI, the structure of earnings exposure shifts. About half of STI revenues are generated abroad, whereas small and mid-cap companies are more domestically exposed. That makes the consumer cycle especially important for the latter cohort.
“Consumer spending accounts for roughly half of GDP and is the backbone of growth,” says St Clair, adding that real incomes are supported by low rates and healthy balance sheets. He expects real consumer spending growth in the 2.5% to 3.5% range to be sustainable, which should underpin domestic mid-caps in consumer and services, alongside real estate-exposed names.
Tourism adds a further impulse as regional income growth persists and Singapore leverages its attractions and infrastructure. “The mix of low interest rates, resilient incomes and steady domestic demand is a tailwind for mid-cap clusters tied to consumption and property over the next two to three years,” he says. That, in his view, supports a broader participation phase in the market beyond the index heavyweights.
One area of real concern over the past two years has been the sharp fall in the number of listed companies. St Clair is candid about the shift in market composition: from around 760 companies a decade ago to 700 in 2023 and about 570 currently. The drop of roughly 120 in the last two years marks a clear break from the prior period, when the net change averaged about eight exits per year.
He cautions against reading this as a structural indictment of the Singapore Exchange (SGX). Headline turnover and liquidity metrics have held up, bid-ask spreads have narrowed and the sectoral mix of exits suggests a cyclical component. Industrial companies account for a meaningful chunk of the delistings, as do real estate names, which mirrors a global pattern in which only the most productive, automated firms are keeping pace with the very high bar for competitiveness.
Others have exited via M&A, privatisations or a shift to private capital. “Our view is that the recent listing shrinkage looks cyclical rather than structural,” he says. “It coincides with very rapid changes in productivity expectations post-Covid and tougher competition in industrial supply chains.” That diagnosis, he argues, strengthens the case for policy aimed at lowering the cost of being public, improving research coverage and catalysing primary issuance when the window is open.
Earnings recoupling
St Clair comes back to earnings more than once. Coming back to the basics, he notes that in finance textbooks, earnings growth tends to exceed GDP growth over time because firms add value, enjoy market power and benefit from operational leverage. In a re-rating environment, total returns should again exceed earnings growth. However, the puzzle in Singapore is that the market has been slow to reflect this relationship in forward numbers, notwithstanding last year’s 7% realised earnings growth, low inflation and improving macro momentum. “It doesn’t seem logical,” he says of near-zero forward estimates earlier in the year.
Two near-term catalysts stand out in his framework. First, continued upgrades to 2025 and 2026 earnings as the breadth theme persists and operating leverage shows up in industrials, communications and parts of financials. Second, the follow-through of policy measures such as tax incentives for listings and fund platforms, plus the EQDP, which together can improve participation and liquidity when primary issuance resumes.
He says: “The policy support is real… It improves the economics of being public and the vibrancy of the market.”
On sector stance, he expects banks, REITs and industrials to remain supported by lower yields, above-GDP loan growth and healthier non-interest income for the first, re-rating potential and deal activity for the second, and the manufacturing-productivity impulse for the third. “For different reasons, the fundamentals behind all the key sectors — financials, industrials, communications and real estate — are favourable,” he says.
Overall, he sees earnings revisions as signals. “If upgrades continue into 2026 while liquidity improves, Singapore can sustain outperformance beyond the banks and the obvious index names,” he adds.
