UOBKH forecasts STI to hit 5,400 by end-2026; bets on EQDP boost, banking giants

[SINGAPORE] The Straits Times Index (STI) may reach 5,400 points by the end of 2026, driven by policy tailwinds and resilient corporate earnings, said UOB Kay Hian (UOBKH).

The STI breached the 4,900 point threshold on Tuesday (Jan 27), shortly after market open. As at 9.38 am, the STI gained 40.46 points or 0.8 per cent to 4,901.39.

In a strategy note released on Friday, the brokerage maintained an “overweight” rating on the Singapore market, projecting a 14 per cent upside from current levels to reach its target valuation of 17.1 times price-to-earnings ratio.

The optimistic call follows a strong performance in 2025, during which the STI rose 22.7 per cent. 

UOBKH analysts John Cheong, Heidi Mo and Tang Kai Jie noted that the market’s outperformance is expected to continue, supported significantly by the deployment of funds from the Equity Market Development Programme (EQDP).

EQDP and policy support

A primary catalyst for the market is the S$3.9 billion allocated to nine fund managers under EQDP. 

The first tranche of S$1.1 billion is already over 50 per cent deployed, but the market has yet to see the deployment of the larger second tranche – worth S$2.8 billion – which remains untouched, UOBKH noted.

This influx of capital, alongside a potential revival in the initial public offering market and the launch of the Singapore Next 50 Index to spotlight mid-cap companies, provides a favourable structural backdrop for equities, analysts said.

Top large-cap picks

For investors seeking exposure to this trend, UOBKH prefers banks over real estate investment trusts (Reits) for capital appreciation.

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DBS – which was upgraded from “hold” to “buy” – is a key pick, with the brokerage setting a target price of S$68.95, implying an 18.7 per cent upside from its Jan 22 close of S$58.08. 

Although the stock reached all-time highs in 2025, it still offers a dividend yield of around 5.6 per cent, which analysts argued supports its valuation.

“Current yield suggests DBS is not expensive,” the analysts noted, adding that at its target price, the yield would be at around 3.8 per cent.

Other large-cap favourites include:

• Genting Singapore : Targeted at S$0.89, this is viewed as a medium-to-long-term play, backed by a robust balance sheet exceeding S$3 billion in cash. Its free cash flow is strong and there is potential for better dividend returns, analysts said.
• Keppel : The brokerage maintains a “buy” call on the conglomerate with a target price of S$11.70, representing a 7.4 per cent upside.
• Sea: The tech company, listed on the New York Stock Exchange, has the highest projected upside among top picks at 65.3 per cent, with a target price of US$200.18.

Small and mid-cap strategy

UOBKH also sees opportunities in the small and mid-cap space. 

The brokerage ranked its top preferences:

• Food Empire (Target: S$3): Offering an upside of around 9.1 per cent.
• Valuetronics (Target: S$1.03): Highlighted for its strong cash position and potential for special dividends, making it an attractive target for EQDP flows.
• China Aviation Oil (Target: S$2.09): Offering 16.1 per cent upside.
• Riverstone (Target: S$1.05): Offering 15.4 per cent upside.

Reits outlook

While banks are favoured for growth, UOBKH remains “overweight” on Singapore Reits for income, citing attractive yields of 5 to 6 per cent and the potential for mergers and acquisitions (M&A) to provide upside surprises.

The brokerage’s top five picks are CapitaLand Ascendas Reit , Keppel Reit , Lendlease Global Commercial Reit , and NTT DC Reit .

The analysts expressed a preference for Keppel Reit over CapitaLand Integrated Commercial Trust and noted that Mapletree Reits, having underperformed in 2025, could benefit as undervalued targets in future M&A scenarios.

Macro resilience

A stable macroeconomic environment supports these valuations, UOBKH said.

It pointed to continued economic growth, noting that while Q4 2025 had a rebound, some moderation is expected. This is complemented by firm domestic demand pillars and a resilient labour market, which continue to provide structural support to the economy, the analysts said.

On the monetary front, UOBKH highlighted cooling inflation figures and a mild appreciation of the Singapore dollar against the US dollar as key stabilising factors for 2026.