Executive Summary

In mid-February 2026, Singapore’s Straits Times Index retreated from its historic milestone above 5,000 points, with the index falling 1.51% to 4,941 points on February 13 and declining 1.34% to 4,949 points in subsequent trading Singapore Stock Market (STI) – Quote – Chart – Historical Data – News | Trading Economics +2. This correction followed the STI reaching an all-time high of 5,021.27 points on February 12, 2026 TRADING ECONOMICS, representing a natural consolidation after a remarkable rally that saw the index gain approximately 27% year-over-year.

Market Context and Background

The Rally Preceding the Decline

Singapore’s economy demonstrated robust fundamentals entering 2026, with GDP growing 4.8% in 2025, accelerating from 4.4% in 2024 TRADING ECONOMICS. The STI’s performance had been exceptional, supported by several structural factors:

Government Policy Support: The S$5 billion Equity Market Development Programme (EQDP), with S$2.85 billion in its second batch being deployed into early 2026, created sustained institutional buying pressure MaxthonDBS Bank.

Banking Sector Dominance: The three major banks—DBS, OCBC, and UOB—collectively represent over 50% of the STI’s weight IG, making the index heavily dependent on financial sector performance.

Safe-Haven Status: Singapore’s political stability, transparent regulatory environment, and defensive SGD characteristics attracted regional and international capital seeking refuge from global volatility.

The February 2026 Correction

The retreat from the 5,000-point milestone was characterized by profit-taking in heavyweight banking and blue-chip counters, with selective weakness across consumer and property-related stocks BusinessToday. This represented a tactical adjustment rather than a fundamental breakdown, occurring in the context of:

• Valuation concerns after the index surged 19% year-to-date through early February
• Global technology sector volatility spilling over from U.S. markets
• Natural consolidation after reaching psychological resistance levels

Sector-Specific Impacts

Banking Sector: The Primary Driver

The banking sector, accounting for approximately 50% of the STI, faced multiple headwinds that contributed to market weakness:

Net Interest Margin Compression: Banks anticipated NIM declining from approximately 2% to the 1.75-1.96% range as interest rates eased, with expectations that net interest income would decline slightly from 2025 levels MaxthonStashAway.

Divergent Performance Among Major Banks:

DBS maintained the strongest position with ROE of 17-18% and trades near 2× book value, reflecting its digital leadership and operational efficiency StashAwayStashAway. The bank demonstrated resilience with total income rising 5% year-on-year in the first half of 2025, maintaining a cost-to-income ratio of 38.5% StashAway.

OCBC faced sharper margin compression with NIM falling 11 basis points year-on-year to 1.98%, though strong loan growth of 9% year-on-year partially offset this pressure StashAway. The bank’s ROE declined to 12.6% from 14.5% a year earlier StashAway.

UOB experienced the most pronounced impact, with third-quarter 2025 net profit plunging 72% year-on-year to S$0.4 billion after setting aside S$0.6 billion in pre-emptive general allowances due to economic uncertainties and sector-specific headwinds Yahoo!.

Investment Implications: Despite headwinds, banks offered attractive forward dividend yields—DBS at 6.1%, OCBC and UOB each at 5.4%—creating a floor for valuations DBS Bank.

Real Estate Investment Trusts (REITs)

The REIT sector experienced mixed performance. CapitaLand China Trust’s second-half distribution per unit fell 11.7% to S$0.0233, weighed down by weaker operating performance, with revenue declining to S$144.5 million and distributable income dropping to S$40.5 million Beansprout.

Technology and Software Spillover Effects

Software stocks sold off sharply during the week, partly triggered by the release of a new AI tool from startup Anthropic that automates legal work, reigniting concerns about how artificial intelligence could disrupt traditional software business models Beansprout. This global tech anxiety contributed to risk-off sentiment that affected Singapore equities.

Economic and Monetary Policy Context

Monetary Authority of Singapore (MAS) Stance

The MAS decided to keep monetary policy steady while raising both core and headline inflation forecasts to 1-2% for 2026, with expectations that GDP growth would remain resilient TRADING ECONOMICS. This represented a balanced approach acknowledging both growth momentum and inflation risks.

Labor Market Stability

The unemployment rate remained unchanged at 2% in the fourth quarter of 2025 TRADING ECONOMICS, demonstrating labor market resilience that supported consumer spending and domestic demand.

Interest Rate Environment

DBS economists expected 3-month SORA to rebound from lows of 1.13% in early December 2025 to hold at approximately 1.25% through 2026, as pass-through from U.S. Federal Reserve cuts to lower short-term SGD rates was expected to remain muted DBS Bank.

Impacts on Different Stakeholder Groups

Retail Investors

Retail investors who had participated in the rally faced paper losses on recent purchases but benefited from:

• High dividend yields providing income cushion
• Strong fundamental backdrop suggesting temporary rather than structural decline
• Continued EQDP support creating buying opportunities on dips

Institutional Investors

Market data showed institutional investors were net sellers while retail investors were net buyers in recent weeks Minichart, suggesting professional money managers took profits near record highs while retail participation increased—a potential contrarian signal.

Foreign Investors

Singapore’s safe-haven characteristics remained attractive. Robust wealth management inflows and activities were viewed as structural, with Singapore increasingly seen as a haven with the SGD exhibiting defensive characteristics amid political stability DBS Bank.

Corporate Earnings Impact

The market correction occurred against a backdrop of generally solid corporate fundamentals:

STI earnings growth was projected to accelerate to 8.8% in 2026, as earnings of index heavyweight banks were expected to turn from a drag in 2025 to deliver 5.4% year-on-year growth in 2026 MaxthonDBS.

Specific sectors showing resilience:

• Hospitality: Expected to meet 2026 visitor targets of 17-18 million with firmer hotel performance
• Aviation MRO: Multi-year maintenance, repair, and overhaul upcycle supporting upstream players
• Infrastructure and Construction: Bright spots for loan growth in the banking sector

Forward-Looking Assessment

Valuation Perspective

The STI traded above its historical average on a price-to-earnings basis, with the strong re-rating beyond two standard deviations driven by MAS market reforms, Singapore’s safe-haven status, and attractive valuations DBS. The February correction helped moderate these extended valuations.

Risk Factors

Key risks identified for 2026 included:

1. Asset quality concerns, particularly in real estate exposures
2. Global macroeconomic uncertainties affecting loan and deposit growth
3. Regulatory changes potentially affecting financial sector profitability
4. Geopolitical tensions that could disrupt trade and investment flows

Opportunities

Analysts maintained constructive views on the banking sector, with OCBC rated as a BUY with a target price of SGD23, reflecting expectations for more progressive capital return plans and possible dividend payout ratio increases MinichartMinichart.

Conclusion

The February 2026 stock market decline in Singapore represented a healthy consolidation after an extraordinary rally rather than a fundamental deterioration. The correction from record highs allowed valuations to moderate while underlying economic fundamentals remained sound.

The banking sector’s dominance of the index meant that sector-specific challenges—particularly net interest margin compression—had outsized market impact. However, strong capital positions, attractive dividend yields exceeding 5%, and continued policy support through the EQDP provided downside protection.

For investors, the episode illustrated the importance of:

• Understanding concentration risk in a bank-heavy index
• Recognizing the role of government policy in supporting equity markets
• Maintaining perspective on short-term volatility versus long-term fundamentals
• Evaluating sector rotation opportunities as different parts of the economy face varying cyclical pressures

The market’s ability to trade near record levels despite anticipated banking sector margin compression and slower GDP growth (projected at 1.7-2% for 2026 versus 4.8% in 2025) demonstrated investor confidence in Singapore’s structural advantages and policy support mechanisms. This positioning the market for continued resilience even as it digested near-term profit-taking pressures.