CASE STUDY
STI Breach of 5,000 | Budget 2026 EQDP Expansion | Structural Market Analysis
February 2026
STI Level YTD Gain GDP Growth EQDP Total
5,001.56 +8.1% 5.0% (2025) S$6.5 Billion
As of 19 Feb 2026 As of 12 Feb 2026 Revised Upward Budget 2026 Expansion
- Market Context and the 5,000 Milestone
On 19 February 2026, Singapore’s Straits Times Index (STI) closed at 5,001.56 — its first sustained hold above the psychologically significant 5,000-point threshold. The session followed a two-day Lunar New Year closure and was catalysed partly by a rebound in U.S. technology equities. However, attributing the milestone solely to external factors would be analytically incomplete. The 5,000 breach is better understood as the culmination of structural reforms and sustained institutional capital deployment over the preceding twelve months.
1.1 The 2025 Re-rating Cycle
The STI recorded 22.7% gains in 2025 — exceptional by historical standards — driven by what analysts describe as multiple re-rating: a simultaneous expansion of earnings expectations and valuation multiples. DBS Group Research identified three primary drivers:
MAS-led equity market reforms that reduced friction for institutional participation
A S$5 billion Equity Market Development Programme (EQDP) that created sustained institutional buying pressure
Singapore’s growing safe-haven status amid geopolitical volatility, attracting an estimated US$2.3 billion in fund inflows
Crucially, the forward investment thesis for 2026 is materially different. As DBS economists note, having already delivered through valuation expansion, the next phase of STI appreciation will be earnings-driven rather than multiple-driven. This distinction has significant implications for sector and stock selection.
1.2 Macro Backdrop: Structural Tailwinds and ‘The 2Ts’
Singapore’s 5.0% GDP growth in 2025 — revised upward — established a high base from which moderating growth in 2026 is anticipated. DBS economists project GDP moderating to approximately 1.8% in 2026, driven by two structural headwinds they term ‘the 2Ts’:
Headwind Nature of Risk Affected Sectors
Tariffs Trade-related disruptions arising from U.S. protectionist policy posture, with particular exposure for export-oriented manufacturers Offshore & Marine, Industrials, Technology Hardware
Tech Cycle Maturing electronics upcycle, potential AI momentum plateau, and threatened U.S. semiconductor tariffs reducing demand visibility AEM Holdings, UMS, Frencken, Venture Corporation
These headwinds are offset by resilience in domestic-facing sectors and policy-backed structural initiatives, discussed in subsequent sections.
- Budget 2026: Policy Architecture and Market Impact
Budget 2026 represents the most consequential domestic policy event for Singapore equities in the 2026 cycle. Its equity market implications extend across three distinct mechanisms: direct capital injection, structural market deepening, and sectoral prioritisation.
2.1 Equity Market Development Programme (EQDP) Expansion
The EQDP was originally announced as a S$5 billion institutional liquidity programme. Budget 2026 expanded it by a further S$1.5 billion, bringing total commitment to S$6.5 billion. Structurally, this expansion is significant for the following reasons:
Fund managers under the EQDP are explicitly mandated to allocate capital to Singapore-listed equities, creating a non-discretionary buyer base that insulates mid-cap stocks from global risk-off sentiment
New fund manager appointments expected in mid-2026 will deploy fresh tranches, providing a predictable forward catalyst
The programme’s explicit inclusion of the ‘Next 50’ index constituents means smaller-cap names receive institutional sponsorship they would not otherwise attract
Analytical Note: The ‘Flywheel Effect’
The EQDP expansion is designed to initiate a self-reinforcing cycle: institutional capital inflows improve liquidity, which lowers bid-ask spreads and reduces trading costs, which attracts further institutional participation, which drives valuation re-rating. The critical test is whether this liquidity-driven re-rating is sustained by underlying earnings growth — a question that will be answered through 2026 earnings seasons.
2.2 The Anchor Fund: S$3 Billion for High-Growth Listings
Separately from the EQDP, Budget 2026 injected a second S$1.5 billion tranche into the Anchor Fund, bringing its total to S$3 billion. The Anchor Fund’s mandate differs from the EQDP in targeting pre-IPO, primary, and dual-listing capital for high-growth, new economy companies. Implications include:
An enriched IPO pipeline for SGX through 2026-2027, expanding the investable universe beyond the current index constituents
Particular relevance for digital infrastructure and fintech plays, given the fund’s new economy mandate
The planned SGX-Nasdaq dual-listing bridge (expected mid-2026) amplifies this, potentially allowing Asian companies to simultaneously access Singapore and U.S. capital pools
2.3 Sectoral Budget Priorities with Equity Implications
Policy Theme Budget Initiative Beneficiary Stocks / Sectors
Digital Infrastructure AI investment, data centre expansion, cybersecurity mandates Singtel, StarHub, Keppel DC REIT, NTT DC REIT (SGX: NTDU)
Defence Spending maintained at ≥3% GDP; preparation for geopolitical escalation scenarios ST Engineering (SGX: S63)
Energy Transition Low-carbon ammonia bunkering (Jurong Island); green shipping corridor Keppel Ltd (consortium lead), Sembcorp Marine
Capital Markets EQDP expansion; Anchor Fund; SGX-Nasdaq bridge; CPF investment reform iFAST Corporation (SGX: AIY), SGX Group
Enterprise Ecosystem Start-up nurturing; private capital catalysation; global company attraction Venture Corporation, advanced manufacturing names
- Sector and Stock Analysis
This section provides analytical coverage of the four primary sectors relevant to Singapore equity investors in 2026, with reference to specific listed names and the sustainability of their investment propositions.
3.1 Banking Sector: Resilient Profitability, Moderating NIM Tailwind
Singapore’s three major banks — DBS (SGX: D05), OCBC (SGX: O39), and UOB (SGX: U11) — constitute the largest weighting in the STI and remain the anchor of most institutional Singapore equity portfolios. Their investment thesis for 2026 rests on three pillars:
Capital adequacy: All three banks entered 2026 with well-capitalised balance sheets, providing capacity for sustained dividends and opportunistic buybacks
Net Interest Margin (NIM) resilience: While the rate cut environment reduces NIM tailwind, fee income, wealth management, and treasury gains partially offset compression
Asset quality: DBS’s FY2025 results indicated asset quality pressures cushioned by ample general provisions, limiting earnings downside
DBS is on positive earnings watch by analysts. UOB, conversely, features on negative earnings watch, reflecting greater sensitivity to ASEAN credit cycle risks. OCBC’s pending CPF investment platform positioning — if iFAST’s CPF vendor bid succeeds — creates an indirect ecosystem benefit.
Critical Consideration: The S$70 Billion Rotation
JPMorgan’s regional outlook identified a S$70 billion cash pile in Singapore bank deposits beginning to rotate into equities — a structural tailwind that, if it materialises, would sustain demand for high-quality, dividend-yielding equities well beyond 2026.
3.2 REITs: Entering an Earnings Upgrade Cycle
Singapore REITs (S-REITs) enter 2026 in a structurally improved position relative to 2023-2024. The primary constraint — rising interest rates compressing distribution yields — has abated. The sector is now entering what analysts describe as an ‘earnings upgrade cycle,’ characterised by:
Stabilising borrowing costs as rate cuts reduce refinancing pressure on leveraged balance sheets
Improving physical occupancy rates across commercial, industrial, and data centre sub-segments
Return of acquisition activity, as lower cost of capital makes yield-accretive transactions feasible again
Keppel DC REIT (data centres) and selected industrial REITs are preferred by DBS analysts. Retail REITs such as Frasers Centrepoint Trust (SGX: J69U) may face headwinds if cost-of-living relief reduces consumer spending volumes that sustain tenant rental capacity.
The STI’s aggregate yield of approximately 4.1% compares favourably with the Next 50 index yield of approximately 5.85% — a differential that reflects both the growth premium assigned to mid-cap names and the institutional underinvestment that the EQDP is designed to correct.
3.3 Industrials and Defence: Structural Beneficiaries
ST Engineering (SGX: S63) presents perhaps the clearest case study in policy-aligned earnings visibility. With Singapore’s defence budget anchored at or above 3% of GDP, and Budget 2026 explicitly flagging preparedness for further increases under geopolitical escalation scenarios, ST Engineering’s order book faces structurally supportive conditions.
The stock’s post-rally valuation is the primary analytical question for new investors — a consideration that applies equally to SIA (SGX: C6L) and Keppel (SGX: BN4), both of which have delivered strong recent performance. For each, the analyst question is whether current pricing adequately reflects the forward earnings trajectory or whether the re-rating has front-run fundamentals.
3.4 Mid-Cap Spotlight: The ‘Next 50’ Investment Case
The EQDP’s explicit mandate to support the ‘Next 50’ index creates a category of structurally supported mid-cap stocks. Key names with analytical relevance include:
Company SGX Code Investment Theme Key Risk
iFAST Corporation AIY CPF vendor potential; digital wealth platform; eMPF track record (HK) Tender outcome uncertainty; competitive fintech landscape
NetLink NBN Trust CJLU Monopolistic fibre infrastructure; stable regulated returns; defensive yield Regulatory pricing review risk; limited growth optionality
ComfortDelGro C52 Transport recovery; international operations; urban mobility diversification Labour cost inflation; ride-hailing competitive pressure
NTT DC REIT NTDU Data centre REIT; AI infrastructure tailwind; EQDP inclusion High capital intensity; concentration risk; relatively new listing
- The Dividend Sustainability Question
Much of the retail discourse around Singapore equities centres on dividend yield — a focus that, while understandable given the STI’s income profile, requires analytical scrutiny. The core question is whether observed yields are sustainable, growing, or at risk of compression.
4.1 Analytical Framework for Dividend Assessment
A rigorous approach to dividend assessment requires examination of three factors:
Payout ratio discipline: Dividends funded from operations rather than debt or asset disposals are intrinsically more sustainable. A payout ratio consistently above 90% warrants scrutiny, particularly in capital-intensive businesses
Free cash flow coverage: The ratio of free cash flow to dividend outflow provides the most conservative measure of sustainability, excluding non-cash accounting effects
Balance sheet leverage: REITs and infrastructure trusts typically operate with higher leverage, meaning interest rate sensitivity can rapidly compress distributable income
Core Analytical Principle
As noted by The Smart Investor: ‘Dividends are paid from earnings, not government sentiment.’ A S$6.5 billion stimulus can lift a stock’s price, but cannot fix a structurally impaired business model. For income investors, the EQDP’s value lies in the liquidity conditions it creates — not as a substitute for earnings analysis.
4.2 Dividend Yield Landscape: STI vs. Beyond-STI Comparison
Category Approx. Yield Liquidity Profile EQDP Benefit
STI Constituents (Blue Chips) ~4.1% High — institutional breadth Indirect
Next 50 Index ~5.85% Improving — EQDP mandate Direct — explicit mandate
Beyond-STI Dividend Plays 5%+ Thin — retail-dominated Minimal
The yield premium of Next 50 constituents over STI blue chips (approximately 175bps) reflects both genuine growth optionality and a liquidity discount that the EQDP is structurally designed to erode over time. For investors willing to tolerate transitional liquidity risk, this gap represents a potentially durable source of excess return.
- Forward Outlook: 2026 Scenarios
5.1 Base Case
DBS Group Research projects an end-2026 STI target of 5,000, implying approximately 7.6% upside from the 31 December 2025 close of 4,646 (noting the index has already closed above this level as of February 2026, suggesting the base case has been partially front-run). Return drivers in the base case are:
Earnings delivery from banks, industrials, and selected REITs replacing the valuation expansion of 2025
EQDP-driven institutional flows sustaining mid-cap re-rating
New fund manager appointments in mid-2026 providing a discrete inflow catalyst
JPMorgan’s projected ROE improvement to a historical high of 12% for SGX-listed companies
5.2 Upside Scenario
Conditions under which SGX equities outperform the base case:
Accelerated U.S. rate cuts reducing global cost of capital, benefiting leveraged structures (REITs, infrastructure trusts) disproportionately
Successful SGX-Nasdaq dual-listing bridge attracting high-profile new economy listings, re-rating SGX as a global exchange venue
S$70 billion deposit rotation into equities materialising faster than anticipated
Geopolitical risk driving further safe-haven capital flows into Singapore assets
5.3 Downside Scenario
Key risks to the constructive outlook:
‘The 2Ts’ materialising more severely than priced — tariff escalation or AI momentum plateau compressing technology sector earnings significantly
GDP moderation to 1.8% triggering a risk-off reassessment of Singapore’s growth premium
REIT sector stress from delayed rate cuts or credit events in overleveraged structures
Geopolitical escalation in the region creating capital flight from ASEAN broadly, overriding Singapore’s safe-haven positioning - Analytical Conclusions
Several conclusions emerge from a systematic examination of Singapore equity markets in the context of Budget 2026 and the prevailing macro environment:
The EQDP is structurally significant, but earnings remain the terminal arbiter.
Government-directed liquidity can compress valuation discounts and improve trading conditions, but cannot sustainably elevate prices absent underlying earnings growth. Investors benefiting most from the EQDP will be those who identify quality businesses that were previously illiquid rather than those who simply chase price momentum.
Sector selection matters more in 2026 than broad-market beta exposure.
Given that multiple expansion is largely exhausted after 2025’s 22.7% rally, forward returns will be differentiated by sector and stock. Defence, digital infrastructure, and EQDP-included mid-caps are best positioned structurally; retail-oriented businesses and electronics-exposed industrials face headwinds from ‘the 2Ts.’
Dividend analysis requires a free cash flow lens, not a headline yield lens.
The income focus of Singapore retail equity discourse creates pricing inefficiencies in both directions — overpaying for headline yields with fragile cash flow coverage, and underpaying for growing payers with temporarily suppressed nominal yields. A disciplined free cash flow approach to dividend assessment is a durable source of analytical edge.
The SGX-Nasdaq bridge and Anchor Fund represent multi-year optionality.
These initiatives will not fully materialise in 2026, but position Singapore as a credible dual-listing venue for Asian and global growth companies. The long-term implications for index composition, foreign investor participation, and valuation comparables make this the most underappreciated structural initiative in the Budget 2026 package.