STI hits record high above 4,700 points, may reach 5,000 in 2026

SINGAPORE – The benchmark Straits Times Index (STI) hit a new record high above 4,700 points on Jan 6, as investors shrugged off geopolitical risks and took their cue from Wall Street’s surge to an all-time peak, with analysts calling 5,000 points “a very achievable target” this year.

The STI gained 1.27 per cent or 59.47 points to finish at 4,739.97, after 1.71 billion securities worth $1.78 billion changed hands. OCBC Bank crossed $20 for the first time, closing at a new high of $20.18, while DBS jumped to a fresh high of $57.93.

Investors cannot afford to ignore the Singapore stock market, said Ms Carmen Lee, head of equity research at OCBC Group Research, at OCBC’s annual Premier Private Client Investment Seminar at the Ritz-Carlton on Jan 6.

The STI outperformed the US S&P 500 in 2025 and closed the year up 22.7 per cent, after notching new highs for eight consecutive months, she noted in a Jan 5 research note. “The last time this happened was in 2006-2007.”

Local stocks got a big boost from regulatory initiatives such as the Equity Market Development Programme (EQDP), which pooled $5 billion with selected fund managers to invest in locally listed companies.

The second and latest batch of six asset managers has been appointed to oversee $2.85 billion under the EQDP, bringing the total allocation to $3.95 billion so far, with $1.05 billion still to be deployed.

“A lot of regional investors are in Singapore stocks. A number of small- and mid-cap stocks did exceptionally well (in 2025), and there will be more focus on this space in 2026,” Ms Lee said.

She added that the STI could rise further as valuations improve in 2026.

“(Local) banks will still see a good year. In the last two years, banks were driven by interest income. But in 2026 and 2027, capital market activity or new IPOs could provide a second wind.”

Despite market volatility, financial stocks closed 2025 with an average gain of 20.7 per cent, as banks surprised the market with stronger-than-expected earnings, Ms Lee said in her Jan 5 research note.

The outlook for 2026 suggests that bank earnings should remain steady even as lending margins narrow, supported by strong growth in wealth management activity and healthy returns, she said.

Bull markets usually last five to six years, with the market currently in its third year of the cycle, said Mr Vasu Menon, managing director of investment strategy at OCBC.

Even as concerns remain over inflation, tariff uncertainty, rising geopolitical tensions, and the US Federal Reserve’s independence under the Trump administration, Mr Menon believes that the outlook is still benign and market pullbacks are opportunities to buy.

On the impact of higher US tariffs, OCBC chief economist Selena Ling said “the US bark has been worse than its bite”.

Despite the lingering threat of US semiconductor tariffs and pharmaceutical tariffs, she noted: “We are not at risk of recession, but we will see a slowdown in many ASEAN countries including Singapore in 2026, mainly because the base growth was so high in 2025.”

Singapore’s manufacturing surged in the final quarter of 2025, driven by demand for artificial intelligence-related semiconductors and pharmaceuticals, which helped the economy achieve better-than-expected full-year growth of 4.8 per cent.

Things could hold up “if the AI boom continues, finance and insurance (sectors) continue to do well, and (tourists and MICE) visitors keep coming”, she said.

Local brokerage house UOB Kay Hian is also bullish on its outlook for Singapore stocks, citing continued tailwinds from the EQDP and a return to earnings growth for many local stocks.

Following first-half results and third-quarter business updates in 2025, most companies saw upgrades to earnings expectations, and this momentum is likely to continue into 2026.

“On the back of this earnings growth, we forecast a year-end target of 5,000 for the STI in 2026,” UOB Kay Hian analyst Adrian Loh said in a Jan 2 research note.

The property, land transport, healthcare and plantation sectors are expected to see double-digit percentage increases in earnings.

“In particular, the property sector, which comprises CapitaLand Investment and City Developments, could benefit from improving operating conditions and recurring income growth, a recovery in key markets, as well as macro environment tailwinds,” Mr Loh said.

The financial and telecommunications sectors are also expected to post 1.2 per cent and 9.6 per cent earnings growth, respectively, in 2026.

Despite fears of net interest margin compression, the local banking sector’s earnings held up extremely well in 2025 and should continue to be buoyed by the wealth management industry, while the telecommunications sector should benefit from stabilisation of core services and improved operator profitability, Mr Loh said.

Given the prevalence of blue-chip defensive stocks with strong cash flow generation and relatively high dividend yields, the Singapore market will continue to attract fund flows, he added.

Undergirding the local market’s strength, the Singapore economy grew surprisingly well in 2025, due to stronger contributions from the manufacturing, commerce and finance sectors, UOB Kay Hian said.

For 2026, UOB Global Economics and Markets Research forecasts gross domestic product growth of 2.1 per cent, which is at the higher end of the Ministry of Trade and Industry’s forecast of 1 per cent to 3 per cent.