STI could hit as high as 6,500 on extended rally, says JPMorgan, giving its top picks

[SINGAPORE] As the Straits Times Index (STI) nears 5,000 points this week, an extended rally could drive the blue-chip barometer past the 6,000 threshold by the end of 2026, said JPMorgan Securities in a Wednesday (Jan 28) report.

This comes as the STI broke 4,900 for the first time on Tuesday, after consecutive records in 2025. Other market watchers see the benchmark index reaching 5,000 this year. DBS sees it at 5,000, UOB Kay Hian forecasts it hitting 5,400, and Maybank thinks it could touch 5,600.

Factors driving the STI’s rise in 2026 include “upbeat earnings outlooks, a strong Singapore dollar, high dividends and (the Republic’s) status as a safe haven amid global geopolitical uncertainties”, said JPMorgan analysts led by Khoi Vu.

“This rally has extended legs, in our view, as further development of Value Unlock initiatives should enhance corporate return on equity, flows and price discovery,” they added.

Small and mid-cap (SMID) stocks could “stage a catch-up rally”, driven by the disbursement of funds under the Equity Market Development Programme (EQDP) and a broadening investor base, said the analysts.

They noted that the second tranche of EQDP funds will be disbursed in the first or second quarter of 2026.

“On the back of these tailwinds, we revise up our STI base-case target to 6,000, and bull case to 6,500.”

The base-case target implies an 18 times 12-month forward price-to-earnings ratio, the analysts said. This is still lower than the highs of 2007 and 2002, where the ratios were 18.2 times and 20 times, respectively.

The target also implies a dividend yield of around 3.6 per cent, with a 2.3 percentage point gap above the six-month Treasury bills rate, the analysts said.

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DBS , UOL , Keppel and ST Engineering were named as JPMorgan’s top picks.

EQDP tailwinds and SMID catch-up

With the EQDP having “translated into strong equities prices and increased trading liquidity”, the JPMorgan analysts believe the government will “push forward with further reforms in 2026” to ride on the momentum.

SMID stocks have lagged large-caps by more than 7 per cent over the last three months, but could soon catch up over the next three to six months on the back of “strong catalysts”, such as the disbursement of the second tranche of EQDP funds and the remaining allocation from the first tranche.

“Assuming an allocation of about 30 per cent, the inflows to (SMID stocks) could amount to nearly US$1 billion,” the analysts said, noting that this would be more than six times the average daily traded value of the iEdge Singapore Next 50 Index.

“SMID stocks have seen liquidity and coverage increase meaningfully in 2025. In our view, the combination of inflows and better visibility should lead to a rotation of investment flows into SMID stocks.”

Increased inflows

Singapore’s stock market could benefit from the stronger pace of global liquidity and money creation forecast for 2026. The analysts think this is “likely to reverberate” through the Republic’s financial assets, particularly equities.

With global funds and developed-market funds still maintaining light positions in Singapore stocks, the analysts believe that inflows “have room to increase”.

“It looks increasingly likely to us that this global policy set-up will run economies and markets ‘hot’ over the next six to 12 months, keeping earnings supported and inflating equity valuations well beyond ‘normal’ highs to ‘overshoot’ levels,” they said.

“Therefore, we think it is more appropriate to benchmark against extremes in valuations.”