• The STI rose 10.7% year-to-date, supported by strong performances in defensive and high-yielding sectors such as industrials, financials, and utilities.
• The SGD 5 billion Equity Market Development Programme (EQDP) and enhanced GEMS research grants help broaden investor participation and improve liquidity, especially among small- and mid-cap stocks.
• Singapore’s favourable tariff positioning presents a relative advantage that could translate into new opportunities for exports and foreign investment.
• Singapore semiconductor companies show signs of benefiting from strong industry tailwinds, reflected in improved earnings and positive guidance.
• We maintain our 4.0-star “Very Attractive” rating for the Singapore equity market, with a 17.0% upside projected for the STI by end 2027.
STI has gone on a record-breaking rally
Our earlier optimistic outlook on the Straits Times Index (STI) has played out as expected. In our January review, we reaffirmed our 4.0 star “Very Attractive” rating on the Singapore’s equity market, supported by strong manufacturing growth, stable banking sector performance, and compelling dividend yields.
Since our last update on 24 January 2025, the STI has delivered a robust gain of 10.6%, rising from 3,804.26 to 4,208.58 as of 5 August 2025. This rally has propelled the index to a new all-time high, with momentum continuing to push it beyond previous records.
Related Article: Singapore in 2025: Riding the Wave of Strong Manufacturing Growth
Figure 1: STI Price increased year-to-date
The surge has been underpinned by multiple factors. Heightened global uncertainty has prompted investors to rotate into lower-risk, yield-generating assets—benefiting the STI given its defensive profile and attractive dividend payouts. Additionally, broad-based strength across key constituents has supported the uptrend. Notable contributors include ST Engineering (SGX: S63), Jardine Matheson Holdings Ltd (SGX: J36), and Sembcorp Industries (SGX: U96). Meanwhile, Singapore’s heavyweight banking stocks continued to grow steadily, further anchoring the index’s upward trajectory.
Table 1: Top Movers of the STI Index’s growth in 2025
|
Security |
Total Returns YTD in 2025 (in SGD terms) |
Sectors |
|
|
1 |
DBS Group Holdings Ltd |
13.78% |
Financials |
|
2 |
Singapore Telecommunications Ltd |
33.20% |
Communication Services |
|
3 |
Singapore Technologies Engineering |
92.90% |
Industrials |
|
4 |
Jardine Matheson Holdings Ltd |
43.75% |
Industrials |
|
5 |
Singapore Exchange Ltd |
29.53% |
Financials |
|
6 |
Oversea-Chinese Banking Corp Ltd |
5.37% |
Financials |
|
7 |
Keppel Ltd |
26.73% |
Utilities |
|
8 |
Sembcorp Industries Ltd |
45.03% |
Utilities |
|
9 |
Hongkong Land Holdings Ltd |
40.90% |
Real Estate |
|
10 |
CapitaLand Integrated Commercial Trust |
18.01% |
Real Estate |
|
Source: Bloomberg Finance L.P. Data as of 05 Aug 25 |
|||
EQDP catalyses broader market’s attractiveness
Building on the STI’s strong performance, the broader Singapore equity market is gaining traction among global investors. A major catalyst is the Monetary Authority of Singapore’s (MAS) SGD 5 billion Equity Market Development Programme (EQDP), aimed at revitalising interest in Singapore-listed equities. In July 2025, the first tranche of SGD 1.1 billion was allocated to JPMorgan, Avanda, and Fullerton Fund Management to seed actively managed funds targeting a wide range of stocks, particularly under-researched small- and mid-cap companies. Complementing this initiative, the enhanced Grant for Equity Market Singapore (GEMS) now offers up to SGD 6,000 per research report, encouraging broader coverage of lesser-known SGX-listed firms, including pre-IPO candidates.
These measures are expected to boost liquidity in small- and mid-cap segments in the near term while gradually broadening investor participation across the market. As capital and research flow into undervalued areas, this could drive fairer valuations and re-ratings, particularly for fundamentally strong but overlooked companies. EQDP also supports the growth of local and international fund managers, fostering the development of dedicated Singapore equity strategies. Together, these initiatives should enhance market efficiency, generate greater investor interest, and strengthen Singapore’s capital markets ecosystem—creating meaningful long-term opportunities for both institutional and retail investors.
Geopolitical stability underscores investment appeal
Beyond opportunity, Singapore also offers stability. Despite rising global trade tensions—particularly from evolving US tariff policies, Singapore’s economy demonstrates enduring strength. It currently enjoys the lowest baseline US tariff rate at just 10%, which is considerably lower than regional peers facing rates of 15% to 25%.
Although higher US tariffs may weaken global trade and dampen demand for Singapore’s trade-linked sectors, the country’s comparatively lower tariff exposure enhances its attractiveness as a sourcing alternative. US buyers and global firms seeking to avoid heavy tariffs elsewhere may reroute trade and investment flows into Singapore. With strengths in high-precision and advanced manufacturing, Singapore is well positioned to benefit from supply chain diversification—reinforcing its role as a trusted global trade and capital hub.
Figure 2: Singapore currently has the lowest baseline tariff
Notably, Singapore is the only ASEAN economy running a trade deficit with the US, which could improve its prospects for continued preferential treatment in future trade negotiations. The country is also actively engaging US counterparts to seek tariff reductions on strategic sectors such as pharmaceuticals—a core pillar of its advanced manufacturing base. Success in these talks could further boost trade volumes and attract investment into high-value industries.
In addition, the government also continues to take proactive steps to mitigate external turbulence. On 10 July 2025, the Singapore Economic Resilience Taskforce (SERT) announced a new Business Adaptation Grant, set to launch in October. The programme will offer up to SGD 100,000 in financial support to help local enterprises restructure supply chains, adopt new trade strategies, and mitigate tariff-related disruptions.
Strategic leadership in the global semiconductor ecosystem
Singapore plays an increasingly strategic role in the global semiconductor supply chain, contributing 5% of global wafer fabrication capacity, 20% of semiconductor equipment production, and 10% of total semiconductor output. The newly launched National Semiconductor Translation and Innovation Centre for Gallium Nitride (NSTIC-GaN) aims to localise the production of GaN— a key enabler of next-generation technologies. This initiative prepares Singapore to better capitalise on the growing global demand for semiconductors, driven by advancements in AI, 5G/6G, electric vehicles, and space technologies.
Singapore semiconductor companies have already begun to benefit from strong industry tailwinds, reflected in improved earnings and positive guidance.
AEM Holdings (SGX: AWX) delivered a strong start to the year, with Q1 net profit surging 42.9% year-on-year and net margin improving from 2.5% to 3.9%. The company also raised its H1 2025 revenue guidance to SGD 185–195 million (up from SGD 155–170 million), underscoring its strong execution and continued ability to deliver value to investors.
UMS Integration (SGX: 558) reported a 19% increase in semiconductor component sales, driving revenue growth and an impressive Q1 net profit. The company also reaffirmed its 2Q25 revenue growth guidance of +10% quarter-on-quarter. After two years of earnings contraction, UMS is now turning a corner, marking a clear and positive shift in momentum.
Frencken Group (SGX: E28) saw its semiconductor segment revenue surge 34% year-on-year in Q1, fuelled by a strong rebound in sales from its Asia operations. With robust demand for AI chip equipment expected to continue in 2025, revenue growth is likely to remain strong, and earnings momentum is projected to accelerate—nearly doubling the pace recorded in the previous year.
Industrial advancements, coupled with structural strengths, continue to reinforce investor confidence in Singapore’s long-term market potential.
Foundations in place for recovery in the Singapore REIT ecosystem
S-REITs are currently trading at an average price-to-book (P/B) ratio of around 0.9x — a discount to their historical average of 1.0x while the underlying performance has stayed solid. Most S-REITs with Singapore retail assets record double digit positive rent reversions and robust occupancy rates despite softer retail outlook.
Table 2: S-REITs with Singapore retail assets show healthy rent reversion and occupancy rate
|
S-REITs |
Rent Reversion for Q1 2025 |
Occupancy Rate |
|
CapitaLand Integrated Commercial Trust |
10.40% |
96.40% |
|
Mapletree Pan Asia Commercial Trust |
3.60% |
89.60% |
|
Frasers Centrepoint Trust |
9.00% |
99.50% |
|
Suntec REIT |
10.30% |
91.00% |
|
OUE REIT |
4.90% |
99.50% |
|
Lendlease Global Commercial REIT |
10.40% |
92.10% |
|
Source: SGX Data as of 23 Jun 25 |
||
A structural bright spot continues to emerge in the form of data centre REITs. In the light of the surge in digital transformation and AI infrastructure investment, data centres are benefiting from multi-year secular tailwinds. The recent listing of NTT Global Data Centers REIT — Singapore’s largest IPO since 2017, raising USD 773 million, marks an important moment for the sector. The listing reinforces Singapore’s strategic position as a digital infrastructure hub and validates investor expectations in the long-term demand trend for data centres.
Related Article: S-REITs Outlook: Selectivity is key
Investment risks: macro headwinds could moderate performance
Slower GDP growth and drop in exports
While Singapore remains a fundamentally strong economy, near-term headwinds may pose challenges. Although Q2 GDP surprised on the upside with 4.3% growth, the Ministry of Trade and Industry (MTI) maintained a cautious full-year outlook. Growth is expected to moderate in the second half of the year, weighed down by softness in trade-related and modern services sectors. With uncertainty around tariffs, many firms are adopting a wait-and-see approach—holding back on major investments, which may lead to a further slowdown in business spending and a more prolonged drag on GDP growth.
Singapore’s exports to the US, Eurozone, and key ASEAN markets declined in June, and external demand may remain under pressure considering ongoing trade tensions and the potential introduction of sector-specific US tariffs on semiconductors. However, as the decline in exports to the Eurozone was likely due to exporters diverting shipments from Europe to the US during the 90-day tariff reprieve, a rebound is expected once the confirmed tariffs take effect in August, which may partially offset weakness in US-bound trade in the second half of the year.
Interest rate sensitivity in key sectors
The STI’s heavy weighting in financials and REITs makes it highly sensitive to global interest rate trends. In the banking sector, falling interest rates may compress net interest margins (NIMs), especially as loan growth slows and competition for deposits increases. REITs may face pressure from slower economic activity or weaker tenant demand, potentially impacting rental reversions—particularly in office, retail, and trade-exposed industrial segments.
That said, the strong dividend profiles of both sectors continue to support investor appeal. S-REITs are offering an average yield of 5.0%, while all three local banks are projected to deliver yields exceeding 5.6% by FY2027. This income stability helps cushion short-term earnings volatility and reinforces their attractiveness to income-focused investors, even in a more uncertain rate environment.
Attractive valuations with plenty of upside potential
These dynamics collectively suggest that the STI may continue on a “slow but steady” growth trajectory. While near-term gains could moderate, the index offers an attractive risk-adjusted opportunity.
As the global macro landscape evolves, with trade tension and regional growth showing signs of stabilisation, Singapore’s STI remains well-positioned to reward patient, long-term investors.
Currently, the STI is trading at 12.0x PE based on our estimated EPS for end-2027, below our assessed fair value multiple of 14.0x. We project a target level of 4,924 by end-2027, implying an upside potential of 17.0% from current levels. Investors will also be pleased to note that the index offers an attractive average dividend yield of around 5% per annum.
Accordingly, we maintain our 4.0-star “Very Attractive” rating on the Singapore market, supported by its compelling combination of stability, dividend income, and long-term structural growth.
Looking ahead, we believe that there is potential for multiple expansion, supported by improving market liquidity and enhanced growth prospects in the Singapore equity market. We recommend that investors consider positioning ahead of this potential re-rating, with the Nikko AM Singapore Dividend Equity SGD Fund and the Nikko AM Singapore STI ETF (SGX: G3B) as attractive investment options.
Table 3: The STI index’s valuation table
|
2024 |
2025E |
2026E |
2027E |
|
|
PE Ratio (X) |
11.6 |
13.3 |
12.8 |
12.0 |
|
Earnings Growth (YoY%) |
7.3% |
-3.7% |
4.3% |
6.9% |
|
Projected Earnings Per Share (EPS) |
327.6 |
315.5 |
329.1 |
351.7 |
|
Target Price (Based on 14X fair PE Ratio) |
- |
- |
- |
4,924 |
|
Potential Upside (%) |
- |
- |
- |
17.0% |
|
Dividend Yield (%) |
4.81% |
5.28% |
5.36% |
5.66% |
|
Source: Bloomberg Finance L.P., iFast Estimates Data as of 05 Aug 25 |
||||
Figure 3: STI Price vs EPS
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