Macquarie upgrades STI 12-month target to 6,000, names its top picks

[SINGAPORE] Macquarie upgraded its 12-month target for Singapore’s benchmark Straits Times Index (STI) to 6,000, pointing to a “healthy cocktail” of macroeconomic tailwinds, rising domestic interest rates and supportive government market initiatives.

In a Wednesday (Jul 15) note, the financial services firm said the new target implies a 14 per cent total market return from the index level of 5,470 as at the time of the report, when factoring in the STI’s 4.1 per cent forward dividend yield.

If the index reaches 6,000, stocks would once again offer the same typical income advantage over 10-year Singapore government bonds that investors have seen over the long run – about 1.74 percentage points.

Strong macro performance bullish for index earnings

Advanced gross domestic product estimates released by the Ministry of Trade and Industry (MTI) showed the economy expanded by 5.7 per cent year on year in the second quarter of 2026, Macquarie noted. This tracks significantly ahead of MTI’s full-year growth forecast of 2 to 4 per cent. “This is on the back of strong tech manufacturing activity and sustained services sector growth,” the analysts said.

The manufacturing sector experienced a 12.2 per cent year-on-year surge, driven by higher electronics and precision engineering output, supported by strong artificial intelligence-related semiconductor demand.

Rising interest rates to lift index-heavy banks

Financials account for 59 per cent of the STI. “Where financials go, the market goes,” Macquarie said.

It upgraded its outlook on the banking sector, projecting that domestic interest rates bottomed in Q2 2026.

Against a backdrop of a strengthening US dollar environment and Federal Reserve rate hikes, Singapore overnight rates are expected to increase by around 70 basis points over the next 12 months.

“Strong real GDP growth benefits banking sector earnings, likely due to deposit volume, and improved credit risk,” the analysts stated, adding that bank revenues remain highly correlated with the interest rate cycle.

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“Stronger US dollar conditions, and US Fed rate hikes, provide a backdrop for Singdollar rate increases, which is supportive of index heavyweights – the three banks,” they said.

Furthermore, the market is set to receive structural support from state-backed “value-unlocking” policies, including direct fund capital flowing into the Equity Market Development Programme funds, and initiatives aimed at encouraging dual listings and more initial public offerings.

Top stock selections

To ride this growth wave, Macquarie highlighted several high-conviction picks across the Singapore market. Among index heavyweights, Macquarie prefers UOB and OCBC .

UOB is its preferred Singapore bank exposure, as it noted that UOB trades at a 20 per cent price-to-earnings discount to DBS, and 12 per cent relative to OCBC.

“We estimate UOB has the largest exposure to floating rate Singdollar assets at this juncture, though all three banks should benefit from rising rates,” Macquarie said.

Jardine Matheson , Singtel , Hongkong Land , CapitaLand Integrated Commercial Trust , DFI Retail and Seatrium make up the rest of its top large-cap picks.

As for small and mid-caps, Macquarie highlights UOB Kay Hian , iFast , Frencken , UMS and Bumitama Agri as its top picks.