Singapore Equities Market

February 2026 | Straits Times Index | SGX | Budget 2026

1. Executive Summary
   Singapore’s equity market entered 2026 at an inflection point. After delivering a 22.7% gain in 2025 — its strongest annual performance since 2009 — the Straits Times Index (STI) breached the psychologically significant 5,000-point threshold for the first time on 12 February 2026, closing at 5,001.56 on 19 February. This case study analyses the structural drivers underpinning the rally, assesses the near-term outlook across key sectors, and evaluates the macroeconomic and policy impacts flowing from Budget 2026 and the expanded Equity Market Development Programme (EQDP).
   The central argument is that the STI’s advance reflects more than a cyclical re-rating. A convergence of policy intervention, macroeconomic resilience, rising institutional participation, and Singapore’s safe-haven positioning vis-à-vis global geopolitical uncertainty has produced a qualitative shift in how global allocators value Singapore-listed equities. Whether this structural re-rating is durable will depend critically on earnings delivery, the trajectory of US monetary policy, and the depth of the EQDP-driven liquidity transformation.

Table 1: Key Market Indicators (February 2026)
Indicator Value / Estimate
STI Close (19 Feb 2026) 5,001.56
STI YTD Gain (to 12 Feb) +8.1%
STI Full-Year 2025 Gain +22.7%
OCBC STI Target (2026) 5,250
JP Morgan STI Target 6,500
2025 GDP Growth (revised) 5.0%
2026 GDP Forecast 2.0% – 4.0%
EQDP Total Commitment S$6.5 billion
STI Dividend Yield ~4.1%
Next 50 Index Yield ~5.85%

2. Market Background and Historical Context
   2.1 The STI’s Long Road to 5,000
   The Straits Times Index, comprising 30 of the largest and most liquid companies listed on the Singapore Exchange (SGX), has historically traded at a structural discount relative to regional peers — a phenomenon attributable to the index’s concentration in mature financial and real estate sectors, a perceived lack of technology and growth exposure, and a relatively shallow domestic institutional investor base. For much of the 2010s, the STI oscillated between 2,800 and 3,500, trailing the MSCI Asia ex-Japan index on a total return basis.
   The COVID-19 pandemic prompted a decisive policy response. MAS introduced a suite of capital market reform measures, culminating in the 2024 launch of the S$5 billion EQDP, which mandated nine professional asset managers to deploy capital exclusively into Singapore-listed equities. The resulting increase in institutional flows, combined with a global search for high-yield income assets amid declining US interest rates in 2024–2025, catalysed a re-rating that drove the STI to record highs.
   2.2 2025: A Record Year
   The STI’s 22.7% gain in 2025 was underpinned by four concurrent tailwinds. First, the three domestic banks — DBS (SGX: D05), OCBC (SGX: O39), and UOB (SGX: U11), which collectively represent approximately 50% of the index by weight — reported resilient earnings and raised dividends amid a still-elevated interest rate environment. Second, Singapore’s revised 2025 GDP growth of 5.0% — the highest in several years — reflected broad-based strength in manufacturing (particularly AI-related electronics), wholesale trade, and financial services. Third, US$2.3 billion in net foreign institutional inflows confirmed that global allocators were increasingly constructive on Singapore. Fourth, the EQDP had, by year-end, deployed S$4 billion of its S$5 billion mandate, materially improving liquidity conditions in small and mid-cap segments of the market.
3. Budget 2026: Policy Architecture and Market Impact
   3.1 The EQDP Expansion
   The centrepiece of Budget 2026’s market-facing measures was Prime Minister and Finance Minister Lawrence Wong’s announcement of a S$1.5 billion top-up to the Financial Sector Development Fund, expanding the EQDP from S$5 billion to S$6.5 billion. This expansion signals that the government regards market deepening as a strategic priority, not merely a one-off intervention. The next cohort of EQDP fund managers is expected to be appointed around mid-2026, with their capital mandated toward Singapore-listed equities, including the high-yielding ‘Next 50’ companies beyond the core STI constituents.
   The EQDP expansion is analytically significant for three reasons. First, it directly targets the structural liquidity deficit that has historically suppressed valuations of mid-cap and small-cap listed companies. Second, by explicitly incorporating the ‘Next 50’ index — which carries a dividend yield of approximately 5.85% versus the STI’s approximately 4.1% — the programme channels institutional capital toward a previously under-resourced segment of the market. Third, the flywheel mechanism it creates — capital inflows → improved liquidity → valuation re-rating → greater institutional participation — has the potential to become self-reinforcing if earnings fundamentals cooperate.
   3.2 Capital Markets Structural Reform
   Beyond the EQDP, Budget 2026 introduced complementary structural reforms designed to improve the long-term attractiveness of SGX as a listing venue. These include streamlining listing rules and requirements to lower barriers for high-growth companies, and establishing a dual-listing bridge connecting SGX and Nasdaq. The latter measure is potentially transformative: it would allow companies listed on one exchange to achieve secondary listings on the other, broadening the investor base for Singapore-listed issuers and increasing cross-border capital flows. Analysts at Deloitte have noted that these measures are likely to encourage more privately held high-growth companies in Southeast Asia to consider Singapore as their primary listing destination.
   3.3 AI, Digital Infrastructure, and Sectoral Tailwinds
   Budget 2026 also placed considerable emphasis on artificial intelligence adoption and enterprise digitalisation. A new National AI Council — to be chaired by the Prime Minister — was established, and a ‘Champions of AI’ programme was launched to support companies deploying AI to transform their business models. The Enterprise Innovation Scheme was expanded to include AI-related expenditures, providing a 400% tax deduction on qualifying spend. From an equity market perspective, these measures are unambiguously positive for Singapore’s technology-adjacent infrastructure companies: Singtel (SGX: Z74), which operates data centre networks and AI-grade connectivity infrastructure; Keppel DC REIT (SGX: AJBU), which provides data centre real estate exposure; and iFAST Corporation (SGX: AIY), Singapore’s largest independent wealth management platform.
   3.4 Fiscal Position and Sovereign Confidence
   Singapore’s Budget 2026 projects a fiscal surplus of S$8.5 billion for FY2026. While smaller than the S$15.1 billion surplus recorded in FY2025 — partly attributable to that year’s exceptional corporate income tax revenues — the maintained surplus position underscores the government’s continued capacity for counter-cyclical policy deployment. For equity investors, this fiscal strength reinforces Singapore’s sovereign credit standing and supports the risk premium compression that has accompanied the market rally.
4. Sectoral Analysis
   Table 2: Singapore Equities — Sectoral Outlook Matrix (2026)
   Sector Key Names (SGX) Outlook & Drivers
   Banking & Finance DBS, OCBC, UOB Resilient NIM; dividend growth; DBS raised Q4 dividend 10%
   REITs Keppel DC REIT, NTT DC REIT, CapitaLand Rate easing tailwind; EQDP capital inflow; 5–7% yield range
   Industrials & O&M Keppel, ST Engineering, Seatrium Defence spending boost; EQDP-targeted sectors; mixed cycle
   Telecoms Singtel, StarHub AI infrastructure exposure; Budget 2026 positive; digital growth
   Mid-Caps (Next 50) NetLink NBN, ComfortDelGro, iFAST EQDP flywheel; higher yield ~5.85%; re-rating potential
   Aviation & Logistics SIA, SATS Post-pandemic recovery sustained; positive earnings watch (SATS)
   Property & Developers UOL, City Dev, GuocoLand DBS value-unlock thesis; potential cooling-measure easing

4.1 Banking Sector: Resilient But Watchful
The three local banks dominate the STI and have been the primary engine of the index’s re-rating. DBS reported a 10% decline in FY2025 net profit — partly attributable to specific provisions — but simultaneously raised its Q4 2025 ordinary dividend by 10% to S$0.66, supplemented by a S$0.15 capital return, bringing total Q4 dividends to S$0.81 per share. OCBC and UOB also reported solid results, with their share prices advancing 1.3% and 0.9% respectively on the day the STI crossed 5,000. The banks benefit structurally from Singapore’s role as a regional wealth management hub and from their exposure to Southeast Asian credit growth. However, with interest rate normalisation potentially compressing net interest margins in 2026, and DBS flagging asset quality concerns, the sector faces a more nuanced earnings environment than in 2025.
4.2 REITs: Entering an Upgrade Cycle
Singapore REITs (S-REITs) represent one of the most institutionally significant segments of the SGX, collectively accounting for a substantial portion of total market capitalisation. After underperforming in 2023–2024 amid rising interest rates, S-REITs are entering what analysts at DBS Research have characterised as an ‘earnings upgrade cycle’. Falling interest rates reduce the cost of debt for leveraged REIT structures, directly improving distributable income. The EQDP’s explicit focus on the ‘Next 50’ universe — which includes several S-REIT constituents — provides an additional demand-side catalyst. Data centre REITs, in particular, benefit from the secular growth in AI compute demand.
4.3 Mid-Caps and the ‘Next 50’ Opportunity
The most asymmetric opportunity identified in the current market environment is the mid-cap segment captured by the SGX Next 50 index. These companies occupy what analysts have described as a ‘Goldilocks’ position: sufficiently large to exhibit balance sheet stability, yet small enough to offer meaningfully higher growth and income yields relative to the blue-chip STI. With the EQDP expansion explicitly directing institutional capital toward this segment, mid-cap companies such as NetLink NBN Trust (SGX: CJLU), ComfortDelGro (SGX: C52), and iFAST Corporation stand to benefit from improved liquidity, reduced bid-ask spreads, and potential valuation re-rating. The caveat, as analysts at The Smart Investor note, is that dividends are ultimately paid from earnings rather than government sentiment, and investors must assess whether individual businesses can translate improved market conditions into sustainable cash flow growth.

5. Market Outlook: Base Case and Risk Scenarios
   5.1 Base Case: Continued Structural Re-Rating
   The base case for Singapore equities in 2026 is one of moderate but sustained gains, supported by structural policy tailwinds, reasonable valuation, and high dividend yields. OCBC Research has raised its STI target to 5,250, while DBS Research had set a year-end target of 5,000 — a level already achieved by February. JP Morgan has offered a more bullish projection of 6,500 by year-end, implying approximately 30% further upside from the 5,000 level. The wide dispersion in analyst targets reflects genuine uncertainty about the pace of earnings delivery, the magnitude of EQDP-driven demand, and the global macro backdrop.
   For the base case to materialise, three conditions must hold. Corporate earnings must grow at a mid-single-digit pace sufficient to justify current valuations. The expanded EQDP must successfully attract a new cohort of institutional managers willing to deploy capital at scale into the Next 50 universe. And the global technology sector — a key source of contagion risk given Singapore’s electronics and data centre exposure — must avoid a disruptive correction.
   5.2 Risk Scenarios
   Several material downside risks warrant analytical attention. The ‘two Ts’ headwinds identified by DBS — tariffs affecting trade-dependent sectors, and technology cycle risk from a potential deceleration in AI capital expenditure — represent the most proximate threats to the earnings delivery upon which the market’s valuation premium depends. Singapore’s transit-dependent economy is structurally exposed to disruptions in global trade corridors, whether arising from geopolitical escalation in the South China Sea, US-China trade tensions, or supply chain fragmentation. Additionally, with much of the ‘easy’ valuation re-rating from 2025 now complete, further STI gains will require actual earnings growth rather than multiple expansion — a more demanding standard.
   5.3 Upside Scenarios
   Upside scenarios include a faster-than-expected normalisation of global interest rates (which would accelerate REIT re-rating), a breakthrough in the SGX-Nasdaq dual-listing framework attracting several high-profile technology issuers, and an acceleration of the regional wealth management boom driving higher fee income for Singapore’s financial sector. Should AI capital expenditure continue growing at the pace observed in 2024–2025, Singapore’s data centre and semiconductor equipment ecosystem would benefit disproportionately.
6. Broader Macroeconomic Impact
   6.1 Wealth Effect and Household Finance
   The STI’s 22.7% gain in 2025, followed by an approximately 8.1% advance in the first six weeks of 2026, has created a meaningful positive wealth effect across Singapore’s population. This effect is particularly pronounced for CPF Investment Scheme participants and for retail investors who increased equity exposure during the 2020–2022 correction. Rising household financial wealth — combined with strong labour market conditions — has supported consumer confidence and domestic spending.
   6.2 Capital Market Deepening and IPO Activity
   Singapore has historically faced criticism for a thin IPO pipeline and a tendency for high-growth regional companies to list in Hong Kong, New York, or domestic markets. The EQDP, coupled with the proposed SGX-Nasdaq dual-listing bridge, directly addresses this structural weakness. Deloitte’s assessment is that the S$1.5 billion EQDP top-up, combined with streamlined listing rules, is likely to position Singapore as the listing destination of choice for privately held high-growth companies in Southeast Asia in the coming years. This would expand the investable universe, reduce index concentration in banking and property, and attract a younger cohort of retail and institutional investors.
   6.3 Monetary Policy Implications
   Singapore’s monetary policy operates through the exchange rate rather than an interest rate instrument, with MAS managing the Singapore dollar nominal effective exchange rate (S$NEER) within a policy band. The stronger-than-expected 2025 GDP growth of 5.0% has increased expectations of a steepening of the S$NEER appreciation path at MAS’s next policy review. A stronger Singapore dollar would dampen inflationary pressures but could modestly restrain earnings for export-oriented listed companies. Economists surveyed in early 2026 have revised their 2026 GDP forecasts upward to a range of 2.8% to 3.6%, from the official MTI forecast of 2% to 4%, reflecting sustained AI investment momentum and the positive feedback loop from fiscal stimulus.
   6.4 Regional Spillover Effects
   Singapore’s equity market revival carries implications beyond its own borders. As the premier capital markets hub for Southeast Asia, an increasingly vibrant SGX improves the region’s collective ability to channel institutional savings into productive investment. The EQDP’s mandate to support Singapore-listed companies with strong fundamentals creates downstream benefits for the regional businesses — many domiciled in Indonesia, Thailand, Malaysia, and Vietnam — that use SGX-listed holding structures or REITs to access international capital. A more liquid, better-priced SGX also enhances Singapore’s attractiveness as a location for multinational corporate treasury operations and regional headquarters.
7. Investment Implications and Strategic Considerations
   The analytical framework developed in this case study yields several strategic observations for institutional and retail investors approaching Singapore equities in 2026.
   Income Selectivity: The dividend income thesis remains robust, but selectivity is essential. The STI’s approximately 4.1% yield and the Next 50’s approximately 5.85% yield both compare favourably to Singapore 10-year government bond yields and to CPF Special Account rates following the recent T-bill yield decline. However, income investors must distinguish between companies with structurally growing dividend capacity — typically those with pricing power, moderate leverage, and recurring revenue — and those whose yields simply reflect depressed share prices.
   Mid-Cap Positioning: The EQDP-driven mid-cap re-rating presents a time-sensitive opportunity. The announcement of the next EQDP manager cohort in mid-2026 is likely to serve as a near-term catalyst for liquidity improvement in the Next 50 universe. Investors who identify quality mid-cap names before this institutional capital deployment may benefit from the ‘flywheel effect’ of improved liquidity and valuation re-rating.
   Blue-Chip Banks: Blue-chip banks offer income with diminishing multiple upside. DBS, OCBC, and UOB remain the anchors of any Singapore equity allocation, but with the STI’s banking sub-index trading above its long-run average price-to-book ratio, further returns will be driven primarily by dividend yield rather than capital appreciation. Investors should monitor asset quality trends and net interest margin compression as the interest rate cycle turns.
   S-REIT Rehabilitation: S-REIT exposure deserves rehabilitation. After years of underperformance, the S-REIT sector offers a combination of falling interest rate tailwinds, EQDP demand support, and secular growth in data centre demand. Risk-adjusted, the sector merits a strategic overweight relative to history, with a preference for data centre, industrial, and diversified REITs over retail-focused structures.
   Risk Monitoring: Geopolitical and technology cycle risks require monitoring. The STI’s sensitivity to Wall Street technology sentiment — demonstrated by the correlation between US tech corrections and Singapore equity drawdowns — means that investors should maintain awareness of AI capital expenditure trends, US-China trade policy, and global semiconductor demand as leading indicators of potential volatility.
8. Conclusion
   Singapore equities in early 2026 represent an unusually compelling convergence of structural reform momentum, macroeconomic resilience, and geopolitical safe-haven demand. The STI’s breach of 5,000 points is a milestone that reflects not merely a rally, but evidence of a qualitative improvement in the market’s institutional depth, policy support architecture, and valuation credibility. Budget 2026’s S$1.5 billion EQDP top-up, SGX-Nasdaq dual-listing initiative, and AI-focused enterprise support measures collectively reinforce the long-term investment case.
   Nevertheless, the easy gains of 2025 — driven by re-rating from historically depressed valuations — are unlikely to be replicated. The 2026 investment environment demands greater analytical rigour: earnings quality, dividend sustainability, and sensitivity to the ‘two Ts’ of tariffs and technology cycle risk will separate outperformers from the broader index. Investors who approach the Singapore market through the dual lens of structural reform conviction and disciplined fundamental analysis are best positioned to capture the market’s evolving opportunity set.