An AI-charged first half
In its equity strategy report Constructive on 2H26 outlook, OCBC lays out a first half powered by AI. The Philadelphia Semiconductor Index, which tracks the 30 largest US-listed semiconductor companies and counts Nvidia, Broadcom and Advanced Micro Devices among its heaviest names, doubled with a gain of 101.1%. Korea’s Kospi rose by the same amount, while Taiwan’s Taiex added 59.3% and Japan’s Nikkei 225 climbed 39.2%. “Nvidia alone is now worth close to US$5 trillion ($6.4 trillion), larger than the economies of Japan or Germany,” OCBC’s Lee notes.
That dominance cuts both ways. As most investors hold the same handful of AI names, crowded positions have made the market far more volatile, with sharp sell-downs in memory chips over recent weeks. Lee sees money rotating into cheaper, more stable corners of the market, including financials and long-neglected healthcare. “There’s going to be a lot of rotation into some of these undervalued companies.”
For investors who still want AI exposure, senior equity analyst Wong suggests a barbell approach, keeping the chip names that are still delivering strong earnings on one end and adding beaten-down software and cybersecurity names on the other. “Demand is real and very different from what we saw during the dot-com bubble,” Wong says, with some chipmakers guiding that orders outstrip supply into 2027 and 2028.
Singapore’s quiet outperformance
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Amid the volatility, the Straits Times Index returned 11.3% year to date, edging past the S&P 500’s 9.6% even without a single AI heavyweight among its ranks. Add in the dividend yield of about 4.4% and the total returns climb closer to about 15% to 16%, says Lee.
Singapore may not have a listed chip champion of its own. Still, the city-state sits squarely within the AI investment cycle, plugged into three structural tailwinds: infrastructure demand, financial services adoption and government-led digitalisation. As a regional financial hub and data-centre nexus, the city-state hosts one of the highest concentrations of hyperscaler data-centre capacity in Asia Pacific, with Google, Microsoft, Amazon and Meta all committing to major expansions here and along the Johor corridor. For investors, that translates into direct, investable exposure through data-centre REITs and select technology and engineering plays on the Singapore Exchange (SGX), the report notes.
Much of the credit goes to the Equity Market Development Programme (EQDP), the state-backed push launched in February 2025 to revive the local bourse. According to the report, average daily traded value on the SGX jumped 45% to $2.11 billion in 1H2026, and the STI gained 34% since the programme began, clearing the 5,000 level for the first time in February 2026. At 16.1 times current-year earnings, valuations sit just one standard deviation above the long-run average, which OCBC still reads as undemanding.
The three lenders — DBS Group Holdings, OCBC and United Overseas Bank (UOB) — now yield about 4.8% to 4.9%, which Lee calls “almost like a giant REIT”. Despite her fondness for the sector, Lee left the trio out of OCBC’s stock picks this round, a rare omission after years of the banks anchoring her list. “I still like the banks, but this round we didn’t have them in the stock picks… because they have performed tremendously,” she says, noting that all three banks have touched fresh highs. Valuations are “a bit more stretched than, say, six months ago”, she concedes, though the higher-for-longer rate backdrop and the near-5% yield should keep supporting the shares. DBS alone touched a share-price high of $67 in June.
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Fifteen names, six in property
OCBC’s 15 preferred picks lean heavily towards real estate, a nod to the sector’s heavy representation in the Singapore market and to the value on offer after a weak run. The boldest upside sits with building-materials play Hong Leong Asia, with a fair value of $4.20 against a last close of $2.76, and CapitaLand Investment at $3.58, both pointing to gains of more than 40%. UOL Group at $12.87 rounds out the double-digit upside among the developers.
Among real estate investment trusts (REITs), OCBC favours CapitaLand Ascendas REIT ($3.11), CapitaLand Integrated Commercial Trust ($2.67), CapitaLand India Trust ($1.30) and Keppel DC REIT ($2.78), the last for its direct data-centre exposure to the AI build-out. Wong stresses that cheap valuations alone will not spark a re-rating. “Valuations being cheap alone may not be sufficient,” he says, so the team hunts for trusts that can deliver sustainable distribution growth and hold strong balance sheets, with a clear bias towards Singapore assets.
In industrials, ST Engineering ($12.50) remains OCBC’s top defence pick and the best performer among the 15 with a 23.4% ytd gain, riding on heavier global military spending. SIA Engineering ($4.00) is the preferred aviation name, as older aircraft keep maintenance shops busy, aided by a recent tie-up with Air India. Keppel ($13.60) and Sembcorp Industries ($7.48) offer exposure to data centres, power and renewables.
The list also extends to consumer, telecoms, and healthcare. Plantation play Bumitama Agri ($2.20) is the pick on firmer palm oil prices with a near-6% yield. Singapore Telecommunications ($5.75) and NetLink NBN Trust ($1.12) anchor the yield-and-AI angle in telecoms, while Q&M Dental Group (76 cents) plays the ageing-population theme. “Your dentist and your doctor are always still needed,” Lee says of the sector’s staying power.
Rates and risks
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OCBC expects the US Federal Reserve to hold the federal funds rate at its current 3.50%–3.75% range for the rest of the year, with the market even pricing in one hike by October. That higher-for-longer setting has punished REITs, which have returned −4.5% ytd, yet they look cheap at 0.88 times book and a 6.2% forward distribution yield. “If our house view pans out, that potentially means markets were too hawkish previously, so there’s a possibility that share prices may see a bit of re-rating within the REITs space,” says Wong.
Lee is upfront about the calm breaking. Sticky inflation, the US midterm elections in November, energy scarcity and the sheer concentration of AI holdings all sit on the risk list. “A rising tide lifts all boats, but when the tide goes out,” the OCBC report notes, that is when the resilience of a portfolio is truly tested.
Going into the second half of the year, Lee expects a busier pipeline of initial public offerings (IPOs), including billion-dollar names rather than the small listings of years past, aided by a planned Global Listing Board tie-up between the SGX and Nasdaq.
Beyond AI, OCBC is already eyeing the next frontier. Lim sees the crossover between technology and healthcare, powered by AI-driven drug discovery, as one of the market’s most promising long-term themes. But for now, Lim is keeping investors grounded in the fundamentals. “Quality is ultimately still the most important thing to us, because eventually the earnings per share growth has to be able to justify the valuations,” says Lim. Until then, Singapore’s blend of yield and stability remains the ballast every regional portfolio needs.
