Strong January lifts odds of another record year for STI, further upside ahead: OCBC

[SINGAPORE] The year may have kicked off on a shaky note for global markets with geopolitical volatility following American action in Venezuela.

However, the Singapore market appears to have bucked that trend, with at least one analyst suggesting that the strong start to the local bourse in January – which is up about 2.1 per cent since the start of the year – has significantly raised the odds of the Straits Times Index (STI) closing 2026 at another record high.

OCBC’s head of equity research Carmen Lee noted on Jan 8 that in 64 per cent – or about two thirds – of the past 14 years, a strong January performance translated into a “positive” full-year outcome for the local market.

“We believe that January optimism or pessimism often reflects investor confidence in terms of the broader market outlook, geopolitical situation and government and central government policies,” she said.

Lee, as well as other analysts, also believes that Singapore, along with the Singapore dollar, is well-positioned to attract capital from Asean investors seeking stability as geopolitical risks mount.

The January bellwether

In the US, the performance of equities in January predicted the full-year trend in 70 per cent of the years between 1970 and 2025. A similar prediction rate, said Lee, also applied to the Singapore equities market – albeit in a smaller period.

January is often a “good period” for investors to reposition their portfolios, with institutional investors having the need to rebalance portfolios early in the year.

“This takes the form of new capital inflows or outflows in anticipation of macro developments in the months ahead,” Lee explained.

“It is especially pertinent this year, as inflation, US Federal Reserve policy and interest rates will continue to be key factors that will drive market directions.”

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While the STI is on course for a strong January so far, which indicates a strong likelihood of a good overall 2026 performance, the reverse is also true.

“On the corporates and investors front, (January performance) also captures investor sentiment and earnings guidance and outlook,” she said.

Singapore equities to shrug off oil turmoil

Analysts are confident of a good year for Singapore equities after a strong start to the year, despite geopolitical uncertainties. UOB on Jan 9 said the Singapore dollar is set to be the “Asean safe haven”, alongside gold as a global safe haven and the yen as the Group of Seven safe haven.

“Increasing global geopolitical risks intensify the need for safe haven hedges,” said the lender, noting that the Fed is expected to keep interest rates low even as most major central banks conclude their monetary easing cycles by mid-year.

On the equities front, the impact of instability in Venezuela on Singapore is expected to be muted in the near-term, said OCBC analyst Ada Lim on Jan 6.

While the Republic is a “key trading hub for oil”, she noted that the Singapore market is far more diversified than it was a decade ago, limiting its exposure to such volatility.

While there may be potential risk to China Aviation Oil ’s trading revenues, Lim said the long-term impact on broader market players such as Seatrium and Singapore Airlines is unlikely to be negative.

Citi analyst Luis Hilado echoed this sentiment, arguing that risks to key player Seatrium are “contained”. Although 74 per cent of the company’s first-half 2025 order book comprised oil and gas projects, Hilado noted that oil prices are likely to fall below US$60 per barrel.

Seatrium’s major client, Brazilian gas giant Petrobras, also operates with a break-even price of US$50 per barrel for the vast majority of its future expenditure, making project cancellations unlikely. However, Hilado warned that “risk perception” could still weigh on Seatrium’s share price until new major order wins are secured.

Conversely, defence companies such as ST Engineering are expected to benefit from increased budgets given a “growing emphasis on deterrence”.

Pivot to value and dividends

While Singapore stands out as a “regional safe haven”, headwinds in the global market could impact corporate growth in 2026, especially with evolving geopolitical tensions elsewhere.

Although riding the artificial intelligence (AI) and growth wave was profitable in the past two to three years, broadening portfolios could be a necessary defence against market swings, said Lee.

“Value sectors and markets are also likely to be less volatile, especially in view of the high valuations for AI-related sectors,” she added.

“Singapore is a good differentiator from other regional markets largely due to the attractive dividend yields offered by the bigger capitalisation companies. This is favoured by investors looking for steady dividend income, especially in a lower interest rate environment.”

Structurally, the market is also finding support. The equities rally in Singapore has a “long way to go”, according to JPMorgan, as new measures such as the S$5 billion Equity Market Development Programme (EQDP) and the Singapore Exchange-Nasdaq dual-listing bridge create the potential for return on equity to rise to a historical high of 12 per cent.

Both OCBC analysts were “overweight” on Singapore equities, stating that the EQDP has created an ecosystem where “multiple players have vested stakes to generate deeper interest in the Singapore market”.

These stakeholders include asset managers, stockbrokers and investor relations professionals.

“Against this backdrop, small-to-mid-capitalisation companies are likely to stay in the limelight in 2026,” said Lee.

Nanofilm Technologies was named as one such company, holding the highest upside potential among 10 others that also held a “buy” rating and an upside that exceeded 10 per cent.

The other such stocks were Frasers Centrepoint Trust , NetLink NBN Trust , CapitaLand Ascott Trust , ComfortDelGro , Parkway Life Reit , Hong Leong Asia , CapitaLand India Trust , Stoneweg Europe Stapled Trust , Boustead and Info-Tech Systems .