Singapore’s Financial Sector: Opportunities Extend Beyond Banks

• Within Singapore’s financials sector, investor attention has traditionally centred on the three local banks, often overlooking smaller-cap names, despite some delivering stronger earnings growth.

• MAS’s Enhanced Equity Market Development Programme aims to boost investor interest and liquidity in small- and mid-cap equities. Companies with solid fundamentals and reasonable valuations are more likely to attract flows.

• Among small to mid-cap financials, UOB Kay Hian stands out with a strong track record and projected earnings growth, clear exposure to EQDP-driven trading activity, and an undemanding valuation.

• SGX, though a large-cap, could benefit indirectly through increased trading volumes, clearing activity, and listings.

• The three banks remain quality plays, but valuations, particularly for DBS, are elevated. While they still appeal to yield-focused investors, those seeking growth may find better value in overlooked, faster-growing smaller cap companies.

As a premier financial centre in Asia, Singapore’s financial sector remains a cornerstone of its economic framework, anchored by world class banks, a robust regulatory regime, and deepening capital market capabilities.

Yet, the domestic equity market continues to draw criticism for its limited breadth and subdued vibrancy. Trading activity remains disproportionately concentrated in a handful of large-cap counters, notably the trio of local banks - DBS, OCBC, and UOB. In contrast, small- and mid-cap stocks remain underappreciated by investors, despite delivering some of the strongest earnings growth on the SGX, as reflected by the dark blue bar (Figure 1).

Figure 1: Small to mid-cap companies experienced significant earnings growth in 2024

To address structural gaps in the domestic equity landscape, the Monetary Authority of Singapore (MAS) rolled out the Enhanced Equity Market Development Programme (EQDP), committing up to SGD 5 billion in mandates. The initiative is designed to strengthen the domestic asset management and research coverage, while also boosting investor interest in Singapore-listed equities. A key focus of the program is to broaden market depth by directing capital towards SGX-listed small- and mid-cap companies, which have historically been underrepresented in institutional portfolios.

Since its launch, EQDP has catalysed a visible rotation of investor interest beyond the traditional banking heavyweights. As of 4 August 2025, year-to-date returns for small- and mid-cap counters, highlighted in dark blue, have surged, underscoring growing investor confidence and momentum within this segment (Figure 2).

Figure 2: Small to mid-cap companies have delivered stronger year-to-date price returns

Small- to Mid-Cap: Potential Opportunities Gain Attention

The extent to which Singapore’s small- and mid-cap companies benefit from the EQDP, will largely hinge on how effectively appointed fund managers deploy capital, from stock selection to mandate execution, and whether heightened institutional activity spurs broader market engagement.

While EQDP aims to improve liquidity and visibility in this under-researched segment, the impact is unlikely to be uniform. Companies with solid earnings fundamentals and reasonable valuations are more likely to attract fund flows and feature in EQDP-mandated portfolios.

To identify potential beneficiaries, we applied the following screening criteria:

• Market capitalisation between SGD 500 million and SGD 5 billion
• Forecasted medium- to long-term earnings growth exceeding 10% per annum
• Reasonable valuation

Five companies met the market cap threshold (Table 1). Due to potential conflicts of interest, we exclude iFAST Corporation from further analysis.

Table 1: Financial companies with market cap between SGD 500 million to 5 billion

Securities	Market Cap (Billion SGD)
Yangzijiang Financial Holding	3.4
iFAST Corp	2.8
UOB Kay Hian	2.4
Hong Leong Finance	1.2
Pacific Century Region Developments	1.2
Source: Bloomberg Finance L.P., iFAST Compilations Data as of 4 Aug 2025.

UOB Kay Hian stands out as the most direct beneficiary of the EQDP. As a Singapore-centric brokerage with approximately 60% of revenue derived locally, it is well-positioned to capitalise on rising trading activity in the Singapore equity market. Its core business is heavily volume-sensitive, with brokerage commissions forming a major revenue stream. Increased investor interest and equity turnover, along with demand for structured products and derivatives amid heightened volatility and attractive yields, can significantly boost earnings. The company has delivered an impressive earnings CAGR of around 23% over the past five years, with projected growth of 11% CAGR over the next three years.

Yangzijiang Financial Holdings may see modest benefits from the EQDP. While its core focus remains fixed income investments, it is gradually expanding into wealth and equity management, albeit in the early stages. As such, near-term upside appears limited, but benefits could emerge as the business diversifies and scales.

Hong Leong Finance, with its focus on SME lending, and Pacific Century Regional Developments, which has exposure to PCCW and real estate assets in Hong Kong, have limited direct relevance to Singapore equities or EQDP-related flows.

From a valuation perspective, UOB Kay Hian and Hong Leong Finance are currently trading below their 10-year historical averages. Yangzijiang Financial and Pacific Century have re-rated above their respective historical means - since Yangzijiang Financial’s listing in 2022 and based on 10-year data for Pacific Century (Figure 3). In particular, Pacific Century’s recent price surge appears unjustified given its limited EQDP exposure and weak earnings record.

Overall, UOB Kay Hian emerges as the most compelling candidate, meeting key criteria of within the small- to mid-cap range, demonstrating strong historical and projected earnings growth, clear earnings uplift potential from EQDP-related trading activity and fund flows, and trading at a reasonable valuation.

Figure 3: UOB Kay Hian and Hong Leong Finance shows undemanding valuations

Large Caps: Room for Selective Plays

While the EQDP initiative is primarily aimed at catalysing interest in Singapore’s small- and mid-cap equities, we believe large-cap financials will also benefit. As sentiment improves across the market, these anchor stocks, known for their robust fundamentals and institutional visibility, are likely to attract increased investor attention alongside smaller peers.

SGX: Unlocking Its Potential as a More Dynamic Market Operator

As Singapore’s core market infrastructure provider, SGX is well-positioned to capitalise on EQDP-driven market activity. Increased fund flows typically result in higher turnover, directly boosting clearing and trading fees - a key revenue driver for its equities segment. SGX charges an average of 3 basis points per trade; thus, an additional SGD 1 billion in trading volume could add roughly SGD 3 million in revenue.

Beyond transactional income, deeper market liquidity and stronger valuations enhance SGX’s attractiveness as a venue for IPOs and secondary listings, supporting listing and annual fee income. A more vibrant small- and mid-cap landscape may also spur the creation of Singapore-focused ETFs, broader index inclusion, and growing demand for proprietary data and analytics, laying the foundation for longer-term recurring revenue growth.

Although the stock is currently trading at a forward P/E of 25.3X, above its 20-year average of 21.6X, the valuation may be justified if the EQDP successfully drives stronger listing activity and trading volumes. A meaningful uplift in market turnover would enhance SGX’s transactional revenue base and investor appeal, thereby supporting the premium multiple. For context, HKEX trades at a higher 20-year average forward P/E of 29.5X, supported by significantly greater liquidity, with its average daily trading value in June nearly eight times that of SGX. This suggests SGX’s valuation may not be overly stretched if its liquidity can improve meaningfully.

Banks: Quality Assets, But Valuations Remain Elevated

Although DBS, OCBC, and UOB fall outside the direct scope of the EQDP due to their large-cap status and high liquidity, they stand to gain indirectly from the program’s broader impact on Singapore’s capital markets. A significant share of their earnings stems from non-interest income (Table 2), much of which is tied to capital market activity.

EQDP’s influence could filter through four key revenue channels:

• Asset Management: Bank-affiliated managers, DBS via Nikko AM, OCBC via Lion Global Investors, and UOB via UOB Asset Management, can launch Singapore-focused equity funds aligned with EQDP mandates, benefiting from higher fund inflows and associated performance fees.

• Wealth Management: Increased investor interest in Singapore equities may drive sales of Singapore-centric unit trusts and discretionary portfolios, lifting advisory and distribution fees.

• Brokerage and Trading: Greater liquidity and visibility on SGX can support higher trading volumes, directly boosting brokerage revenue at DBS Vickers, OCBC Securities, and UOB Kay Hian.

• Investment Banking and Corporate Finance: Stronger market sentiment could spur IPOs and secondary offerings, enhancing advisory deal flow and underwriting income.

• Among the three, DBS appears best positioned given its higher share of non-interest income and rapid growth in wealth management (Table 2). This places it in a stronger position to capture upside from EQDP-driven capital market activity.

Table 2: Banks’ core earnings breakdown

Segment	DBS	OCBC	UOB
Net Interest Income	62%	67%	64%
Non-Interest Income	38%	33%	36%
— Wealth Management	18%	7%	5%
— Trading	15%	11%	13%
Wealth Management AUM Size as of 31 Dec 2024	~$426B	~$306B	~$190B
Source: Bloomberg Finance L.P., iFAST Compilations Data as of 31 Mar 2025 for revenue.

From a valuation standpoint, DBS is trading at a forward P/B multiple of 1.9X, its highest in two decades and well above its 20-year average of 1.3x. In contrast, OCBC and UOB are valued more modestly at 1.2x, aligning with their long-term historical averages (Figure 4).

Figure 4: DBS is trading at a historic peak in its P/B ratio

DBS’s premium is supported by its superior ROE, which has averaged 17% since 2H 2023, compared with 13% for OCBC and 12% for UOB, driven by disciplined cost controls, solid asset quality, and stronger earnings from non-interest income.

Since 2H23, DBS has maintained a strong ROE of around 17%, but investor sentiment has driven its P/B multiple sharply higher, from 1.3x to 1.9x, well above the linear regression trend (Figure 5). Our fair P/B estimate suggests a fair multiple of 1.75x for DBS, indicating that current valuations may be stretched. With net interest income likely to flatten or decline due to narrowing NIMs, upside appears limited unless non-interest income continues to outperform meaningfully.

By contrast, OCBC and UOB offer more valuation headroom. Their current P/B multiples remain close to the linear regression trend, in line with fundamentals. Our fair value estimates stand at 1.4x for OCBC and 1.25x for UOB, suggesting potential for re-rating if earnings remain resilient.

While upside may be capped amid pressure on NII, these banks remain high-quality income plays, particularly for dividend-focused investors. If the EQDP drives deeper capital market activity, it could catalyse stronger growth in capital-light, high-margin segments such as wealth management, fund distribution, and investment banking, offering new levers for earnings and valuation uplift.

Figure 5: Investors have been assigning increasingly higher valuations to DBS, even as its ROE has remained steady at around 17%

Figure 6: EPS projections show slower growth ahead

Beyond the Banks: Broader Opportunities in Singapore’s Financials Sector

Singapore’s financial sector remains a cornerstone of its economy, and the introduction of the EQDP could be a pivotal catalyst, enhancing market dynamism, liquidity, and Singapore’s role as a regional capital-raising hub.

We believe UOB Kay Hian (SGX: U10) stands out in the small- to mid-cap space as a potential direct beneficiary of EQDP-related flows. Its earnings scalability, domestic focus, and alignment with increased trading activity position it well for a re-rating. In the larger-cap space, SGX (SGX: S68) also enjoy indirect tailwinds via heightened capital markets activity, improved investor sentiment, and expanding non-interest income.

Ultimately, the EQDP serves as a reminder that opportunities within the financial sector extend beyond the banking trio. Investors may find more attractively valued, underappreciated names with solid earnings momentum, and these could be tomorrow’s outperformers.

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a NIL position in the abovementioned securities. The analyst who produced this report hold a position in OCBC (SG