Singapore outlook 4Q26: Earnings and income carry the STI as reforms run further

• Singapore’s growth momentum is broadening, with 2026 GDP forecast at 4.5–5.5% and August NODX up 46.2% YoY, while inflation remains contained at 2.3%.

• Industrials continue to drive STI earnings growth, while banks anchor the index’s income profile with resilient earnings and attractive dividends.

• Market reforms are gaining traction, but with several initiatives still at an early stage, broader re-rating should build gradually.

• SMIDs have seen meaningful re-rating, making stock selection increasingly important. We favour actively managed funds for SMID exposure.

• We maintain our 4.0-star “Very Attractive” rating and raise our STI target to 6,223, implying 9.6% upside alongside an annual dividend yield of around 4%.

The Straits Times Index (STI) extended its record-breaking rally through 3Q26, closing at 5,676 on 30 September 2026, up about 22% year-to-date and 9% above its level at our 2H26 update in June. The index gained strongly in July, supported by its defensive composition as several technology-heavy markets came under pressure from a tech sell-off. Momentum strengthened further during the August earnings season, as the majority of STI constituents reported resilient earnings, providing another leg higher for the index.   

Figure 1: STI extends its record rally since our previous update

Stronger growth and contained inflation reinforce the macro backdrop

On the macro front, growth momentum has strengthened well beyond expectations at the start of the year. Singapore's economy expanded 6.1% in 1H26, prompting MTI to raise its 2026 GDP forecast for the second time to 4.5–5.5%. Trade data point to the same underlying strength. August Non-Oil Domestic Exports (NODX) rose 46.2% YoY, marking the 12th consecutive month of growth and the fifth straight month above 20%, led by a 131.8% surge in electronic exports. Enterprise Singapore has also raised its full-year NODX forecast to 14.0–16.0%, from 3.0–5.0% previously.

The upcycle is supported by a visible capacity pipeline rather than short-lived restocking. With global semiconductor capital expenditure remaining elevated, Singapore’s electronics and precision engineering clusters are positioned to capture sustained orders, supporting manufacturing output and earnings across the SGX-listed supply chain.

Inflation, meanwhile, remains contained. August headline and core CPI rose 2.3% and 2.2% YoY respectively, both in line with consensus. Against a firm growth backdrop, MAS retains room to pursue a gradual, data-dependent appreciation path for the SGD, with a firmer currency helping to contain imported cost pressures. Stronger growth, sustained export momentum and contained inflation provide a supportive macro backdrop for Singapore equities.

Related articles: NODX at 46.2%: Singapore's strongest export print since 1988 confirms broadening upcycle

Singapore’s core inflation firmed again in August. Here’s why we remain constructive on SG equities.

Industrials drive earnings growth as banks anchor STI income

Industrials remain a key driver of STI earnings growth. ST Engineering and Yangzijiang Shipbuilding continue to convert record order books into multi-year earnings visibility, while Keppel's growing base of recurring income adds stability to its earnings profile. Industrials have also overtaken S-REITs as the index's second-largest sector, making STI earnings less exposed to the current higher-for-longer interest rate environment and increasing exposure to global infrastructure and defence spending.

Local banks delivered strong 1H26 earnings, supported by resilient non-interest income, particularly wealth management. Singapore's position as a global wealth hub has strengthened amid geopolitical uncertainty, supporting continued capital inflows. At the same time, net interest margins (NIMs) have stabilised, while net interest income is showing early signs of recovery as 3-month compounded SORA has picked up since May. Sustained growth in wealth management income, alongside a recovery in net interest income, should provide further support to bank earnings through the remainder of 2026 and into 2027.

Figure 2: 3-month compounded SORA has risen from its May low

Following a strong rally before and after the results season, bank valuations leave less room for near-term price upside. However, their attractive dividend yields continue to provide an important source of income for the STI, supporting total returns even as capital appreciation moderates.

S-REITs, meanwhile, continue to face headwinds from the higher-for-longer rate environment, which weighs on distributions and valuations. The impact on the STI remains contained, as growing bank earnings and stronger industrial growth provide offsets, leaving the index with more balanced earnings mix than in previous cycles.

Related articles: S-REITs: Selectivity remains key as 1H26 earnings confirm an uneven recovery

Fee-led growth, compelling total returns: Singapore banks after 1H26

ST Engineering: Three engines, one flight path

Market reforms have further to run, but broad re-rating will build gradually

Looking beyond the index, Singapore's market revitalisation efforts continue to gain traction. On 29 September, MAS appointed a third batch of Equity Market Development Programme (EQDP) asset managers, with SGD 1.45 billion in placements. This brings total placements to SGD 5.4 billion across 14 managers, leaving SGD 1.1 billion of the SGD 6.5 billion programme available. In parallel, MAS committed SGD 20 million to the Grant for Equity Market Singapore (GEMS) scheme to support market making across around 80 small and mid-cap stocks outside the STI through 2028.

Corporate action is also gaining momentum under the Value Unlock programme. More than 70 SGX primary-listed companies repurchased a combined SGD 2.09 billion worth of shares in the first eight months of 2026, 33% above the same period in 2025 and more than double the 2024 level. The increase in buybacks provides a more direct channel for companies to return capital to shareholders while supporting liquidity and valuations.

On the new listing side, the SGX-Nasdaq dual-listing bridge, officially known as the Global Listing Board (GLB), went live in June. The initiative could broaden the range of companies and sectors accessing SGX, particularly as the exchange seeks to attract businesses with established international profiles. However, the GLB remains at an early stage, while the mixed performance of recent IPOs suggests that investor confidence in newly listed companies will take time to strengthen.

The benefits of broader research coverage, deeper liquidity and a wider issuer base are likely to emerge gradually. While the reform agenda has made tangible progress, several initiatives remain at an early stage, and we expect their impact on market-wide valuations to build over time rather than drive a broad-based re-rating in the near term.

SMID re-rating could continue, but stock selection matters more now

Since the launch of the market reform initiatives, small and mid-cap (SMID) stocks have been among the earliest and largest beneficiaries. As EQDP capital, institutional inflows and improved liquidity reached the segment, many quality SMIDs re-rated from deep discounts towards valuations closer to fair value. While the earnings outlook remains positive, the segment now may face fewer catalysts than at the start of the year. The broad-based re-rating that lifted many names simultaneously is less likely to be repeated in the near term.

From here, returns are likely to become increasingly differentiated, favouring companies whose earnings growth can justify higher multiples over those where the re-rating has run ahead of fundamentals. Quality SMIDs with strong earnings growth and reasonable valuations remain available across both domestic and global themes. Domestic infrastructure spending supports selected construction companies, while semiconductor supply chain and data centre names offer exposure to global AI capex through tangible orders and earnings.

Capturing these opportunities will require greater emphasis on stock selection and risk management. We therefore favour gaining SMID exposure through actively managed funds rather than broad passive exposure, as the next phase of performance is likely to be driven more by company-specific earnings delivery than broad-based multiple expansion. For investors, the STI can remain the core holding for diversification, while selective SMID exposure can complement it with additional growth opportunities.

A diversifier with income: why we maintain 4.0 stars

Applying our 15x fair P/E multiple to forecasted 2028E EPS, we raise our STI target to 6,223 by end-2028, from 5,987 previously. This implies 9.6% upside from the 30 September 2026 close. The upgrade is driven entirely by higher earnings estimates following the strong 1H26 results.

Table 1: STI earnings table

Figure 3: STI price vs EPS

Although the price upside is narrower than in our previous updates, we maintain our 4.0-star “Very Attractive” rating. Our conviction rests on the STI's portfolio diversification benefits and income characteristics, rather than price upside alone.

First, Singapore offers a differentiated equity market profile. Global equity returns have become increasingly concentrated in AI and technology. While the growth thesis remains strong and potential returns are attractive, this concentration also brings higher volatility. The STI, by contrast, is anchored by banks, industrials and REITs, giving it relatively limited overlap with this concentration while still benefiting indirectly from the AI capex cycle through the broader economy. This defensive profile was evident during the tech sell-offs since July, when technology-heavy markets such as South Korea, Japan and Taiwan fell sharply, while the STI remained resilient and outperformed during several periods.

Figure 4: STI outperformed tech-heavy markets during recent tech sell-offs

Second, the STI provides a relatively high level of dividend income. With a projected dividend yield of 4.0–4.3% over 2026–2028, the index remains among the higher-yielding major equity markets globally. Dividend income provides an additional source of return that is less dependent on short-term changes in market sentiment. Combined with 9.6% price upside, this supports a favourable total return profile for the STI.

Table 2: STI offers a high dividend yield among major global and regional markets

Index	Dividend Yield
	2026E	2027E	2028E
STI	4.0%	4.2%	4.3%
Hang Seng Index	3.4%	3.6%	3.9%
MSCI World High Dividend Yield Index	3.2%	3.3%	3.5%
MSCI Asia ex Japan Index	2.2%	2.6%	3.1%
Nikkei 225	1.5%	1.7%	1.9%
KOSPI	2.0%	2.5%	3.0%
S&P 500	1.1%	1.2%	1.3%
Source: Bloomberg Finance L.P., iFAST Compilations Data as of 30 Sep 2026

Singapore's investment case has therefore evolved from a re-rating story into an earnings and income story. Earnings growth provides the foundation for returns, dividends add a recurring income component, while the continued rollout of market reforms leaves scope for further re-rating over time. For investors seeking to diversify away from concentrated technology exposure, Singapore equities continue to offer a differentiated combination of earnings growth, income and diversification benefits.

We recommend the  Amova Singapore STI ETF (SGX: G3B)  for broad, low-cost exposure to the STI and its dividend income. For investors seeking exposure to quality small and mid-caps beyond the STI's 30 constituents, we recommend the iFAST-Amova Singapore Equity A SGD, where active management is best placed to identify companies whose earnings support their valuations.

Declaration:

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

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report — including all investment theses, ratings, price targets and conclusions — has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.