Singapore firms, households well-buffered against global shocks, MAS warns of AI pullback

MAS said shifts in global risk sentiment could trigger renewed financial stress, with heightened Middle East tensions, further trade restrictions and a correction in the artificial intelligence investment cycle among the potential sources of volatility. ― AFP pic

By Malay Mail

First Published: Tuesday, 22 Sep 2026 2:06 PM MYT

SINGAPORE, Sept 22 — Singapore’s companies, households and financial institutions have sufficient buffers to withstand shocks but should remain vigilant amid heightened geopolitical and macroeconomic uncertainty, the Monetary Authority of Singapore (MAS) said today.

The central bank’s assessment, reported by CNA, was contained in its annual financial stability review, which examines risks to Singapore’s financial system and its resilience to potential shocks.

Singapore’s financial stress index rose sharply when conflict broke out in the Middle East but the increase was brief before the index returned to historically low levels, although it has since edged higher alongside rising global yields.

MAS said shifts in global risk sentiment could trigger renewed financial stress, with heightened Middle East tensions, further trade restrictions and a correction in the artificial intelligence investment cycle among the potential sources of volatility.

The rapid expansion of AI infrastructure has become an increasingly important driver of global capital demand, while higher interest rates, semiconductor and electricity costs and greater reliance on market financing have raised the returns required for AI investments.

Although AI investment continues to support economic activity and corporate earnings, MAS said current equity valuations depend on strong and sustained revenue growth and “rather sizeable” eventual profits from investments in data centres and advanced semiconductors.

A significant shortfall in earnings or expected returns could prompt a broader reassessment of AI-related valuations, with losses potentially spreading across public equities, corporate bonds and private credit markets, the central bank said.

MAS also warned that renewed conflict in the Middle East and persistent trade policy uncertainty could add to inflation risks, while higher tariffs and further restrictions could increase production costs and geopolitical tensions could disrupt energy markets, shipping routes and critical technology supply chains.

“The increased frequency and duration of supply shocks could make inflation more volatile and unanchor expectations. Monetary policy may consequently have to be more restrictive for longer, tightening financial conditions across sovereign and corporate debt markets,” said MAS.

Domestic financial conditions have remained generally accommodative, with borrowing costs easing over the past year, the three-month Singapore Overnight Rate Average (SORA) continuing to fall and Singapore investment-grade credit spreads tightening, while the Straits Times Index rose 33 per cent year-on-year in the third quarter.

“However, rising global interest rates could exert some tightening pressures in the period ahead,” MAS said, adding that most firms and households have strong balance sheets and are expected to remain resilient under stress.

MAS stress tests showed that banks and insurers are well-capitalised and able to withstand severe macro-financial shocks, while investment funds have sufficient liquidity to meet redemption requests, although highly leveraged firms and households with limited savings buffers could face greater strain.

“In view of the uncertain macroeconomic outlook, firms and households should manage their finances prudently and maintain adequate liquidity buffers against potential stress.”

The central bank said banks should maintain sound risk management and healthy buffers, while insurers should ensure they have adequate capital to withstand potential losses and investment funds maintain sufficient liquidity.