DBS’ S$200 billion milestone: What will it take to create more high-performing big-cap stocks?

[SINGAPORE] The Singapore market achieved a milestone of sorts on Jul 13, as the market capitalisation of DBS breached the S$200 billion level.

At the close of trading that day, DBS had delivered a year-to-date total return of 29.1 per cent. This made it the fourth-best-performing constituent of the Straits Times Index (STI), behind Singapore Exchange (45.6 per cent), OCBC (42.8 per cent) and ST Engineering (31.4 per cent).

UOB was in sixth place with a total return of 27.9 per cent, just behind Wilmar’s total return of 28.9 per cent. The STI’s year-to-date total return stood at 20.3 per cent.

Some analysts attribute the index-beating performance of DBS and the other two banks to an improving outlook for their profitability. Besides the interest rate environment turning more favourable, the banks have been quickly expanding in the wealth management space – where they generate relatively high return on equity (ROE).

In fact, DBS said last week that it is aiming to have more than S$1 trillion in assets under management across its retail and wealth segments by 2030, up from S$644 billion at the end of Q1 2026. DBS also said recently that it plans to open 18 new and 36 upgraded wealth centres across the Asia-Pacific region by the end of 2027.

With the anticipated growth of their wealth management businesses, and reduced pressure on net interest income, the banks may be able to sustain or even increase their already elevated ROEs – justifying further expansion of their rich price-to-book multiples.

DBS reported an annualised ROE of 17 per cent for Q1 2026, and is currently trading at 2.95 times its net asset value (NAV). OCBC and UOB reported annualised ROEs of 13 per cent and 11.5 per cent for the same quarter, and are trading at 2.07 times and 1.43 times NAV, respectively.

Wide gaps among STI constituents

For some market watchers, the relentless rise of DBS may feel like a cause for concern.

As at Jun 30, DBS already had a 27.6 per cent weighting in the STI. This was nearly twice OCBC’s weighting of 16.7 per cent, and nearly three times UOB’s weighting of 10 per cent.

Is the STI becoming over-exposed to DBS and the other two banks? Does the overwhelmingly large representation of the banks negate its usefulness as a performance benchmark and a barometer of broad market sentiment?

In my view, the local market would be well served by the introduction of a broader index that increases the visibility of mid-sized companies. Indeed, this column recently suggested that SGX form a new market benchmark comprising the constituents of the STI and the iEdge Singapore Next 50 Index, but excluding their real estate investment trusts.

To prevent the largest constituents from dominating the index, each of them could either be weighted equally or capped at, say, 5 per cent.

Yet, such an index would not increase the number of very large and liquid, high-performing companies relevant to global investors in the local market.

DBS and OCBC are currently the two largest components of the index, with market caps of about S$205 billion and S$128 billion, respectively.

The next two largest constituents are Singtel and UOB, with market caps of about S$72 billion and S$70 billion, respectively – which makes them only about one-third the size of DBS.

In fifth place is ST Engineering, with a market cap of about S$33 billion – which makes it half the size of UOB, and less than one-fifth the size of DBS.

Meanwhile, the 14 smallest constituents of the STI have market caps ranging from less than S$10 billion to more than S$3.3 billion – which makes DBS between 20 times and 62 times as large as each of them.

While DBS may now be richly priced, as long as its underlying business remains robust, its enormous size and liquidity will probably make it a magnet for global capital seeking exposure to Singapore and the region.

More high-performing big caps needed

The way I see it, the uneasiness some market watchers may feel about DBS isn’t really about its increasingly dominant weighting in the STI, but the fact there is a dearth of similar high-performing and globally relevant big-cap stocks listed in Singapore.

Other than OCBC, UOB, Singtel and perhaps ST Engineering, what other locally listed companies have the potential to be in the same league as DBS? More to the point, what can be done to foster more such companies in Singapore?

One obvious lesson from DBS is that having a capable chief executive is absolutely crucial. The banking group only really hit its stride after its former CEO Piyush Gupta took the helm in late 2009.

Another lesson is that gaining a significant global or regional footprint is necessary, given the small size of the Singapore market. But this requires controlling shareholders and boards to come out of their comfort zone and make some difficult decisions.

Following the Asian financial crisis, the government publicly advocated for there to be only two major local banks, in order for them to achieve sufficient economies of scale to compete internationally.

The decisions on mergers and acquisitions had to be left to the boards and shareholders of the banks, though – and Singapore ended up with three local banks, instead of two.

During a dialogue at an Association of Banks in Singapore event in 2010, then minister mentor Lee Kuan Yew said, “I would have preferred personally that there be only two banks, because I don’t think Singapore is big enough for three banks. But neither OCBC nor UOB was willing to combine or be taken over by DBS. So we’ve left it.”

He added, “But I think in the end, there must be further consolidation. You can’t go abroad, and finally (you’ve) got to go abroad in a big way because there’s a limit to what you can do in the Singapore market.”

Looking back now, I wonder what would have happened if the government had not pushed as hard as it did to get the banks to merge. Would Singapore have three large financial institutions, two of them with market caps of more than S$100 billion? Or would there be a larger number of less-efficient players struggling for investor attention?

Would online banks have made bigger inroads into an underserved retail banking space?

In my view, Singapore’s financial sector regulators should take a similarly active approach in getting the locally listed companies to reposition themselves, focus on their most scalable businesses, and become as large and relevant to global investors as DBS, OCBC and UOB.

Already, we have seen Keppel and Sembcorp Industries undertake extensive restructurings to unload their offshore and marine units, and concentrate on their more promising businesses. Hongkong Land has sold its property development arm and begun pushing into fund management. There is also persistent talk of some kind of combination of the CapitaLand and Mapletree groups.

With some luck, perhaps the day will come when all 30 constituents of the STI will comprise companies with market caps of more than S$100 billion.