Construction, defence among sectors to watch in Singapore amid geopolitical tensions: analysts

[SINGAPORE] Singapore’s construction boom is one of the key drivers of the local stock market’s recent performance, said analysts, though they cautioned that a prolonged Middle East conflict could weigh on the sector.

The strong performance in construction-linked stocks comes amid several mega projects in the city-state, such as the development of Changi Airport Terminal 5, ongoing Housing & Development Board programmes, and the building of the Cross Island Line Phase 2.

Thilan Wickramasinghe, head of research at Maybank Securities, said such initiatives could amount to a projected S$100 billion through to 2030 and beyond.

Total construction demand in Singapore is projected at S$47 billion to S$53 billion in nominal terms this year, based on estimates by the Building and Construction Authority.

A structural demand floor

RHB equity research head Shekhar Jaiswal said that the Republic’s construction sector is a “clear” domestic growth story for the Singapore Exchange, with elevated activity expected in the space till at least 2029.

The analyst added that a “structural demand floor” is set for the city-state’s construction sector.

“A contractor building public housing or a Land Transport Authority tunnel is drawing Singapore dollar revenue from government contracts,” he told The Business Times. “In the current environment, that is about as stable a revenue profile as one can find.”

He added that many private-sector projects announced are likely already awarded funds or in “active procurement”.

Materials cost pressures, however, have weighed on the sector recently, said Andy Wong, senior equity research analyst at OCBC.

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Jaiswal added that they could be exacerbated if the Iran war persists, due to extended supply chain disruptions, resulting in project execution risks.

But as cost escalation clauses are standard in Singapore public-sector contracts, they provide a “reasonable project-level hedge”, said the analyst.

Soilbuild Construction was a counter which both analysts highlighted – with Jaiswal flagging Hong Leong Asia and Wee Hur as his preferred construction plays as well.

Hong Leong Asia and Wee Hur’s share prices have grown by around 30 per cent and 3 per cent in the year to date, respectively. Over the same period, the share price of Soilbuild Construction has risen by around 15 per cent.

Defence counters see spotlight

Another sector which will likely see an uptick is that of defence, due to the ongoing up cycle in spending in the space amid geopolitical conflicts.

Demand, order-book growth and earnings of defence counters will therefore be supported, said Ada Lim, equity research analyst at OCBC. This is on top of Asia likely being the next “defence epicentre” as budgets grow.

“Asian defence contractors have been stepping in to plug supply shortages where the Western hemisphere is facing capacity constraints,” she added.

Singapore, notably, has the third-highest military expenditure per capita globally, with defence spending kept at 3 per cent of gross domestic product for 2026.

“(However), the city-state is prepared to increase this where necessary, with a focus on unmanned systems and cybersecurity,” the analyst observed.

In particular, she noted that companies such as ST Engineering and engineering services provider Nordic Group are well-leveraged on this theme of “sustained… budget reprioritisation” as part of “a long-term reset… as governments prepare for a more contested, unpredictable global order”.

Positive on banking stocks; Reits to see mixed results

Maybank’s Wickramasinghe said Singapore’s large banking sector will perform well in a “high-inflation” environment.

“When interest rates (are) high, it’s good for the sector – because (company) margins will begin to be fairly well-supported,” he noted.

Analysts are generally positive on DBS , with RHB’s Jaiswal flagging OCBC as well to investors seeking a defensive Singapore portfolio.

OCBC’s Wong noted that among the Singapore real estate investment trusts (Reits), his picks include OUE Reit and Parkway Life Reit .

However, various capital-recycling activities since the second half of 2025 by different Singapore Reits and asset managers have been shelved temporarily due to the Middle East conflict, given the weaker investor sentiment, he caveated.

“The two-week ceasefire that was announced could provide a boost to capital market activities again, although clearer signs of a longer-term or permanent de-escalation to the conflict would still be needed for companies to commit to their plans,” said the OCBC analyst.

A good hedge – or just a feel-good market?

Experts concurred that Singapore equities are seen as a “safe haven” for capital – particularly amid global volatility due to the Iran war.

OCBC’s Wong and Lim added at a media briefing on Monday (Apr 13) that ongoing equities market reforms provide an “additional tailwind”, especially for small and mid-cap stocks too.

That said, some have asked if Singapore’s stock market is just a “feel-good” market at this juncture, as opposed to being a real hedge in a crisis.

RHB’s Jaiswal said that several factors such as the city-state’s reputation of “political neutrality” and how the Singapore dollar is actively managed for “stability” is a significant draw to investors seeking a strong, defensive play.

Singdollar strength currently protects investor returns too, noted the OCBC analysts.

Jaiswal added: “When Asian markets surged on the ceasefire announcement earlier this month, the Straits Times Index rose less than 1 per cent, against a 7.1 per cent jump in South Korea’s Kospi and 5.5 per cent in the Nikkei 225.

“That asymmetry of muted drawdowns and muted relief rallies is what defensive investors want.”