February 2026

EXECUTIVE SUMMARY

The Singapore stock market demonstrated exceptional resilience and growth in early 2026, with the Straits Times Index (STI) reaching record highs near 4,944 points as of February 3, 2026. This represents a remarkable 29.32% year-on-year increase and a 5.63% gain over the past month. The market’s strong performance is underpinned by several structural catalysts: the $5 billion Equity Market Development Programme (EQDP), stabilizing interest rates, robust banking sector dividends, and improving macroeconomic fundamentals.

Singapore’s three major banks—DBS, OCBC, and UOB—have emerged as market leaders, collectively representing approximately 50% of the STI’s market capitalization. The banking sector’s combination of attractive dividend yields, strong capital positions, and regional growth exposure positions it favorably for continued investor interest throughout 2026.

1. SITUATION ANALYSIS

1.1 Market Performance Overview

Index Performance: The STI reached 4,944 points on February 3, 2026, marking a significant milestone in Singapore’s equity market recovery. The index has demonstrated consistent upward momentum, gaining 5.63% over the past month and an impressive 29.32% year-over-year. This performance places the STI among the best-performing major Asian indices for the period.

2025 Performance Context: The strong 2026 start follows an exceptional 2025 where the STI gained 22.7% in capital appreciation plus approximately 5% in dividend yield, bringing total returns to over 27%. The preliminary data shows Singapore’s GDP grew 4.8% in 2025, accelerating from 4.4% in 2024, providing fundamental support for equity valuations.

Historical Context: The current rally represents the best year for Singapore equities since 2019, transitioning the market from what analysts characterized as a ‘survival phase’ during the high-rate environment of 2023-2024 to a ‘growth phase’ in 2026.

1.2 Key Market Drivers

1.2.1 Banking Sector Dominance

Singapore’s three major banks—DBS Group Holdings, Oversea-Chinese Banking Corporation (OCBC), and United Overseas Bank (UOB)—have driven significant market gains. These institutions collectively comprise approximately 50% of the STI’s market capitalization and have demonstrated divergent performance characteristics:

Bank	Price-to-Book	Dividend Yield (FY2026)	Market Position
DBS	2.2x	6.1%	Premium play – digital leadership, highest ROE (18%)
OCBC	1.4x	5.4%	Balanced play – strongest loan growth (9% YoY)
UOB	1.2x	5.4%	Value play – 90th anniversary S$3B capital return package

DBS has demonstrated the strongest price performance, rising 28.2% in 2025 and achieving a market capitalization exceeding S$150 billion. The bank commands a premium valuation due to its digital leadership, regional franchise strength, and superior return on equity. OCBC has shown impressive operational momentum with the fastest loan growth, while UOB offers the most attractive valuation at 1.2x price-to-book despite facing elevated asset quality concerns related to U.S. commercial real estate exposures.

1.2.2 Interest Rate Environment

The stabilization of interest rates has emerged as a critical positive catalyst for Singapore equities. The 3-month Compounded SORA has declined from peaks near 4.5% to approximately 1.28% by late 2025, significantly easing refinancing burdens across the financial sector. While net interest margins (NIMs) are expected to compress by approximately 10 basis points in 2026, this is modest compared to the 80-basis-point expansion enjoyed since early 2022.

The Monetary Authority of Singapore (MAS) maintained its monetary policy stance in January 2026 while raising both core and headline inflation forecasts to 1-2% for the year. The MAS expects GDP growth to remain resilient in 2026, providing a supportive macroeconomic backdrop for equity markets.

1.2.3 Government Policy Support

Equity Market Development Programme (EQDP): The S$5 billion EQDP represents a watershed moment for Singapore’s capital markets. As of early 2026, S$3.95 billion has been allocated but not fully deployed, with analysts expecting significant fund flows into 1H2026. While the EQDP is primarily targeted at small and mid-cap stocks, market observers believe large-cap stocks will benefit substantially from spillover effects.

Market Structure Reforms: The comprehensive set of measures aims to restore market vibrancy and attract both domestic and international capital. These reforms include enhanced disclosure requirements, improved corporate governance standards, and initiatives to increase market liquidity.

1.2.4 Singapore REITs Recovery

Singapore Real Estate Investment Trusts (S-REITs) are positioned for a pivotal recovery year in 2026. After struggling through 2023-2024’s high-rate environment, S-REITs delivered total returns of 12-15% in 2025, marking their best performance since 2019.

Current Valuation Metrics:

• Average Price-to-NAV: 0.85 (simple average), 1.02 (weighted average)

• Trailing 12-month yield: 5.41% (simple average), 5.17% (weighted average)

• Gearing ratios improving as lower borrowing costs enable deleveraging

• Interest coverage ratios strengthening across the sector

The lower rate environment is expected to drive capitalization rate compression in the private real estate market, supporting property valuations and REIT net asset values. REITs with shorter debt maturities and higher floating-rate exposure are positioned to benefit earlier from improving refinancing conditions.

1.3 Challenges and Risk Factors

1.3.1 Banking Sector Headwinds

Net Interest Margin Compression: All three major banks have guided for softer NIM and net interest income (NII) in 2026. DBS expects NIMs in the range of 2.05-2.15%, while UOB projects 1.75-1.80%. This compression, driven by falling benchmark rates and SGD strength, will pressure traditional banking revenue streams.

Asset Quality Concerns: UOB faces elevated asset quality challenges, with average new non-performing asset formation of S$556 million over the past four quarters—notably higher than peers. The bank’s U.S. commercial real estate exposures remain a source of investor concern. UOB has responded with additional general provisions, strengthening coverage to 1% of performing loans.

Loan Growth Moderation: While still positive, loan growth is moderating across all three banks. DBS registered modest 3% growth, UOB 4%, and OCBC 9%. Analysts expect continued deceleration in 2026 as economic growth normalizes.

1.3.2 Valuation Concerns

At current levels, the STI trades at a 2026 P/E of 14.3 times, in line with its 10-year average but representing an 8% discount to its long-term average. Some analysts warn that DBS and OCBC have crossed target prices after recent rallies, with valuations appearing ‘stretched’ following the strong 2025 performance.

The key question for investors is whether current valuations adequately price in the best-case scenario of sustained dividend growth and fee income expansion offsetting NIM compression.

1.3.3 Global Economic Uncertainties

Singapore’s open economy remains vulnerable to global economic headwinds. Key risks include:

• Slower-than-expected global growth dampening trade and financial services demand

• China’s economic trajectory and property sector challenges affecting regional sentiment

• U.S. Federal Reserve policy uncertainty impacting capital flows

• Geopolitical tensions disrupting supply chains and investment patterns

2. MARKET OUTLOOK

2.1 Overall Market Projection

Analysts project the STI will reach 5,000-5,600 points by end-2026, representing 1-13% upside from current levels. UOB Kay Hian’s target of 5,000 implies the index would trade at a 2026 P/E of 16.0 times—not considered ‘egregious’ given expected fund flows from EQDP deployment and improving return on equity (ROE) metrics.

Singapore’s corporate ROE has improved from 9.2% in 2022 to an estimated 10.6% in 2026, supporting multiple expansion. The market is entering what analysts describe as a ‘sweet spot’ characterized by:

• Macro resilience with GDP growth expected to remain around 2-3%

• Structural reforms via EQDP creating sustained capital inflows

• Attractive valuations relative to historical averages and regional peers

• Upside earnings risks as companies benefit from stabilizing rates

2.2 Sector-Specific Outlook

2.2.1 Banking Sector

Revenue Dynamics: While net interest income will face headwinds from NIM compression, banks are expected to partially offset this through strong fee income growth. Wealth management assets under management grew 18% YoY at DBS and OCBC, 8% at UOB in Q3 2025. Cards, treasury client flows, and investment banking activities should contribute high single-digit to double-digit non-interest income growth.

Capital Returns: All three banks maintain robust capital positions well above regulatory requirements. Common Equity Tier 1 (CET1) ratios stand at 15.1% (DBS), 15.0% (OCBC), and 14.5% (UOB)—at least 5 percentage points above minimum requirements. This provides substantial capacity for dividend growth and share buybacks.

Expected Dividends: DBS is forecast to increase its ordinary quarterly dividend by 6 Singapore cents to 66 cents in 2026, plus a 15-cent capital return dividend, yielding 6.1%. OCBC maintains a 60% payout ratio with potential upside if management provides clearer forward guidance. UOB’s 90th anniversary package includes a 50-cent special dividend spread over 2025 and a S$2 billion buyback program.

2.2.2 Real Estate Investment Trusts

S-REITs are positioned for a pivotal recovery as 2026 transitions the sector from survival to growth mode. Key favorable factors include:

Financing Environment: Falling rates improve REIT economics directly. Interest savings flow into distributable income, yield spreads become more appealing versus risk-free rates, and acquisition funding becomes more accessible. REITs with quality balance sheets, disciplined capital management, and Singapore-focused assets are preferred.

Preferred Segments: Commercial, retail, and industrial REITs remain most favored for 2026. Quality differentiators include:

• Weighted average lease expiry (WALE) of 5+ years providing income visibility

• Interest coverage ratios above 3.0x demonstrating debt serviceability

• Gearing below 40% allowing acquisition capacity

• Strong sponsor backing for acquisition pipelines

Distribution Growth: REITs with shorter debt maturities and higher floating-rate exposure will see earlier DPU improvements in 2026-2027 as refinancing occurs at lower rates.

2.2.3 Property Developers

The outlook for residential property prices is modest appreciation of 1-3% in 2026, with supply ramping up from government land sales and public housing moderating price growth. However, property developers benefit from:

• Multi-year construction upcycle driven by infrastructure, hospitality, and housing projects

• EQDP potentially benefiting small and medium-sized developers

• Value unlocking through asset monetization and privatization opportunities

• Grade A office assets benefiting from muted supply over 2-3 years

3. INVESTMENT SOLUTIONS AND STRATEGIES

3.1 Portfolio Construction Approach

Analysts broadly recommend a balanced Singapore portfolio for 2026 combining:

Core Holdings (60-70% allocation): Blue-chip banks (DBS, OCBC, UOB) for stability, dividends, and regional exposure. Direct ownership delivers 5-6% yields versus approximately 4% from STI ETFs, though ETFs provide diversification across 27 other constituents.

Income Enhancement (20-30% allocation): High-quality S-REITs with strong balance sheets, particularly commercial, retail, and industrial segments. Focus on REITs trading below NAV with yields in the 5.5-7% range and interest coverage ratios above 3x.

Growth/Satellite Positions (10-20% allocation): Selected mid-cap stocks benefiting from EQDP flows, technology-enabled companies with regional exposure, and property developers positioned for the construction upcycle.

3.2 Specific Stock Recommendations

3.2.1 Banking Sector Picks

DBS Group Holdings: Premium quality play for investors prioritizing growth over value. The bank’s digital leadership, superior ROE of 18%, and regional franchise justify the 2.2x price-to-book valuation. Expected 6.1% dividend yield provides attractive income while participating in long-term growth. Best suited for investors with conviction in Southeast Asian economic expansion and willing to pay up for quality.

OCBC: Balanced risk-reward profile with potential re-rating catalyst. Trading at 1.4x price-to-book, OCBC offers value relative to DBS while maintaining strong fundamentals. The fastest loan growth among peers (9% YoY) and potential for enhanced capital returns beyond the current 50% payout ratio provide upside. Recommended for investors seeking yield (5.4%) with moderate growth prospects.

UOB: Deep value opportunity for risk-tolerant investors. At 1.2x price-to-book—the lowest among Singapore banks—UOB provides the best valuation with a 5.9% dividend yield (including special dividends). The 90th anniversary S$3 billion capital return package demonstrates management commitment to shareholder returns. However, investors must be comfortable with elevated asset quality concerns. Suitable for bargain hunters willing to be patient as the bank works through U.S. CRE challenges.

3.2.2 REIT Recommendations

Top Picks for 2026:

• Frasers Centrepoint Trust (FCT): Singapore-focused suburban retail portfolio with defensive characteristics. FY2025 DPU of S$0.1211 (up 0.6% YoY), aggregate leverage of 39.6%, interest coverage of 3.46x, and 98.1% occupancy demonstrate stability. Necessity retail focus provides resilience.

• Keppel REIT: Grade A office exposure with favorable outlook. Net property income up 11.8% YoY in 1H2025, 95.9% occupancy, rental reversion of 12.3%. Disciplined gearing, easing refinance spreads, and market rents outpacing expiring leases support 2026 performance.

• Mapletree Pan Asia Commercial Trust (MPACT): Diversified Singapore retail (VivoCity, Mapletree Business City) with select regional exposure. Benefits from interest rate stabilization with resilient operating metrics.

• CapitaLand Ascendas REIT (CLAR): Industrial and business park leader with strong sponsor backing and acquisition pipeline. Quality management and regional diversification provide growth optionality.

3.3 Risk Management Strategies

3.3.1 Diversification Guidelines

While Singapore banks offer attractive characteristics, concentration risk must be managed. Recommended maximum allocations:

• Single bank position: 15-20% of portfolio

• Total Singapore financial sector: 40-50% maximum

• Singapore equities overall: 50-70% for Singapore-based investors

For international investors, Singapore should represent tactical exposure to ASEAN growth rather than core portfolio positioning.

3.3.2 Timing Considerations

Dividend Capture Strategy: Singapore bank stocks have shown tendency to rally ahead of dividend announcements and ex-dividend dates. Investors should be aware that buying after strong rallies may result in acquiring shares at premium valuations just before dividend adjustments.

Dollar-Cost Averaging: Given elevated valuations following the 2025 rally, systematic accumulation over 3-6 months may be prudent for new positions. This approach reduces timing risk while building exposure to the structural EQDP catalyst.

Quarterly Earnings Catalysts: Bank earnings releases provide key inflection points. Investors should monitor quarterly NIM trends, fee income momentum, and credit quality indicators closely. Material deviations from guidance could create tactical entry or exit opportunities.

3.3.3 Monitoring Framework

Investors should track the following key metrics quarterly:

For Banks:

• Net interest margin trends and guidance updates

• Non-interest income growth rates, particularly wealth management

• NPL ratios and specific provision trends

• CET1 ratios and capital return announcements

• Loan growth by segment and geography

For REITs:

• Distribution per unit growth and sustainability

• Gearing levels and interest coverage ratios

• Occupancy rates and rental reversions

• Weighted average lease expiry trends

• Debt maturity schedules and refinancing costs

4. EXPECTED IMPACT AND IMPLICATIONS

4.1 Impact on Investor Portfolios

4.1.1 Income-Focused Investors

Singapore’s equity market offers compelling opportunities for income-oriented investors in 2026:

Enhanced Yield Environment: With bank dividend yields of 5.4-6.1% and quality REITs offering 5.5-7%, Singapore equities provide meaningful real yields. These yields compare favorably to Singapore 10-year government bonds at approximately 2.2% and offer inflation protection through growth potential.

Dividend Sustainability: Strong bank capital positions (CET1 ratios 5+ percentage points above requirements) and REIT regulatory frameworks requiring 90% income distribution provide high confidence in dividend sustainability. Banks have maintained or grown dividends through economic cycles, demonstrating resilience.

Total Return Potential: Combining 5-6% dividend yields with potential 5-15% capital appreciation as the STI targets 5,000-5,600 points creates attractive double-digit total return scenarios. This positions Singapore equities competitively within Asian markets for risk-adjusted returns.

4.1.2 Growth Investors

While Singapore is not typically characterized as a growth market, several structural factors create growth opportunities:

Regional Expansion: Singapore banks derive significant earnings from regional operations across Southeast Asia. As ASEAN economies grow at 4-6% annually, banks’ regional loan books and wealth management franchises provide organic growth engines.

Wealth Management Boom: Assets under management grew 18% YoY at major banks, driven by Singapore’s status as a wealth hub. High-net-worth migration into Singapore, particularly from Greater China, creates sustained inflows. Fee-based income from wealth management offers higher-margin, capital-light growth.

Digital Transformation: DBS’s digital leadership demonstrates how technology can drive efficiency and customer acquisition. The bank’s digital customers show higher engagement and lower cost-to-serve, creating operating leverage as digitalization accelerates.

4.2 Market Structure Impact

4.2.1 EQDP Transformation

The S$5 billion Equity Market Development Programme represents a structural shift for Singapore’s capital markets:

Liquidity Enhancement: Deployment of S$3.95 billion into 1H2026 will significantly improve market liquidity, particularly for mid and small-cap stocks. Higher liquidity reduces bid-ask spreads and transaction costs, making the market more attractive to both domestic and international investors.

Institutional Interest: EQDP deployment signals government commitment to capital market development, potentially catalyzing increased institutional participation. International fund managers may allocate more to Singapore as liquidity and governance standards improve.

IPO Market Revival: Improved market conditions may encourage quality companies to list in Singapore, expanding the investable universe. A more vibrant IPO market creates wealth creation opportunities and enhances Singapore’s competitiveness as a listing venue versus Hong Kong and other regional exchanges.

4.2.2 Regional Capital Allocation

Singapore’s improved market dynamics may shift regional capital allocation patterns:

Relative to Hong Kong: While Hong Kong offers exposure to China growth, Singapore provides greater political stability, regulatory clarity, and diversified ASEAN exposure. The EQDP catalyst and superior dividend yields may attract capital flows from Hong Kong-focused strategies.

ASEAN Hub Status: Singapore’s role as the premier ASEAN financial center could be reinforced. Regional companies may increasingly choose Singapore for capital raising and listing, creating a virtuous cycle of market development.

4.3 Economic and Social Impact

4.3.1 Wealth Effect

A sustained equity market rally creates positive wealth effects for Singapore:

Retirement Savings Enhancement: Many Singaporeans hold bank stocks and REITs in their investment portfolios and Central Provident Fund (CPF) Investment Scheme accounts. Portfolio appreciation and growing dividends enhance retirement security.

Consumer Confidence: Rising asset values typically boost consumer confidence and discretionary spending, creating positive feedback loops for the economy. This is particularly relevant for retail and hospitality sectors.

Income Inequality Considerations: While equity appreciation benefits investors, policymakers must ensure broad-based participation in market gains. The EQDP’s focus on market development rather than direct subsidies may have limited impact on income distribution.

4.3.2 Corporate Sector Implications

Cost of Capital: Higher equity valuations reduce the cost of equity capital for Singapore companies, facilitating investment and expansion. This is particularly beneficial for growth companies seeking to fund regional expansion.

M&A Activity: Improved market liquidity and valuations may catalyze increased merger and acquisition activity. Property developers and real estate managers, in particular, have been actively pursuing value-unlocking strategies through asset monetization.

Corporate Governance: Enhanced market scrutiny and EQDP governance requirements may drive improvements in corporate governance standards across listed companies, benefiting minority shareholders.

5. CONCLUSION

Singapore’s stock market stands at an inflection point in early 2026. The convergence of government policy support through the S$5 billion EQDP, stabilizing interest rates, robust banking sector fundamentals, and attractive valuations creates a constructive environment for equity investors.

The banking sector’s combination of 5.4-6.1% dividend yields, strong capital positions, and regional growth exposure provides core portfolio stability. While net interest margin compression poses challenges, fee income growth from wealth management and cards should partially offset traditional banking revenue pressures. S-REITs offer complementary income opportunities with 2026 marking a transition from survival to growth as lower rates drive improving economics.

However, investors must remain cognizant of risks. Valuations have extended following the strong 2025 rally, with some analysts flagging that targets have been reached. Global economic uncertainties, China’s trajectory, and geopolitical tensions could disrupt the positive narrative. Within the banking sector, UOB’s elevated asset quality concerns require monitoring.

The key to navigating Singapore’s equity market in 2026 lies in balanced positioning: combining high-quality blue-chip banks for stability and dividends with selective REIT exposure for income enhancement, while maintaining appropriate diversification. For income-focused investors, Singapore offers attractive risk-adjusted returns in a low-rate world. For growth investors, the region’s wealth management boom and digital transformation provide secular tailwinds.

As the STI targets 5,000-5,600 points by year-end 2026, representing potential 1-13% upside from current levels plus 4-6% dividend yields, total return potential remains compelling. The market has evolved from questioning its relevance during the 2023-2024 downturn to demonstrating renewed vitality. Success in 2026 will depend on execution: banks delivering on fee income growth to offset NIM pressures, REITs demonstrating DPU growth as refinancing occurs at lower rates, and EQDP funds flowing effectively into market development.

For investors willing to embrace Singapore’s structural transformation while managing concentration and valuation risks prudently, 2026 offers an attractive opportunity to participate in the city-state’s continuing evolution as ASEAN’s premier financial center.

Disclaimer: This case study is for informational and educational purposes only and should not be construed as investment advice. Investors should conduct their own due diligence and consult with qualified financial advisors before making investment decisions. Past performance does not guarantee future results. All data and projections are based on publicly available information as of February 2026 and are subject to change.