Can money still be made when the STI has hit record highs?

SINGAPORE - After a remarkable performance in 2025, the stock market bulls continued their charge in the new year, pushing the Straits Times Index (STI) to record highs.

Understandably, the rally has prompted many retail investors to ask a familiar question: Is it too late to join in the party and can we still make more money? 

Here are some numbers for context.

The STI surged nearly 30 per cent in Singapore dollar terms in 2025, delivering its best annual return in more than a decade. On Jan 13, it vaulted past the 4,800 mark, and has been hovering around there since. 

The rally emboldened a number of analysts to float the possibility of the benchmark reaching 5,000 points before the year is out, based on current momentum and expected earnings growth.

Analysts at JP Morgan have a bull case scenario projection of 6,000 and beyond, contingent on market reforms and sustained capital inflows.

The most notable projection is that the STI could reach 10,000 by 2040, a prediction by DBS. This assumes an annual return of about 5.6 per cent over 15 years, which is considered achievable when combined with the index’s attractive dividend yields of around 4 per cent per year. The index’s average total returns including dividends over a rolling 15-year period since 2000 have ranged between 6 per cent and 13.3 per cent.

Will the STI remain a money tree or has it reached its peak? The Straits Times asks experts for their views.

To buy or not to buy is not the question

Mr Hugh Chung, chief investment officer at Endowus, an independent fee-only wealth and fund platform, says when markets hit record levels, investors worry about buying at the peak.

However, history shows that markets often reach new highs because economies grow, earnings compound and dividends are reinvested over time.

“Price levels alone do not tell the full story. What matters is what is driving the market and whether those drivers remain sustainable,” he says.

Mr Mark Yeo, head of investment advisory at StashAway, a digital investment platform, says framing the question in binary terms – whether you should go all in on Singapore equities or stay out entirely – misses the nuanced approach for sound portfolio construction. 

Investors who simply looked at the STI’s lacklustre historical returns and avoided Singapore entirely at the end of 2024 would have missed the rally in 2025. Conversely, those who buy aggressively after a sharp run-up risk buying at the peak.

“Perhaps the best way to invest into STI is not in an ‘all-or-nothing’ manner, but rather a gradual allocation and right-sized positioning within a globally diversified portfolio,” Mr Yeo says.

From a valuation perspective, Singapore equities still look relatively attractive despite recent rallies, he says. 

The market’s 12-month forward price to earnings (PE) ratio stands at around 15.4 times, which is considerably cheaper than the S&P 500’s 25.7 times. S&P 500 is a stock market index that tracks the stock performance of 500 leading companies listed on stock exchanges in the United States.  

PE ratio reflects how much investors pay for each dollar of a company’s earnings. You can calculate it by dividing the share price of a company by its annual earnings per share to help determine whether a stock’s current price is reasonable relative to its earning power.

Mr Paul Chew, head of research at Phillip Securities, says index levels matter psychologically, but they are poor timing tools.

The STI’s previous record was in 2007. Since then, the index has gained roughly 21 per cent in absolute terms, or about 1.1 per cent annually. Most investors stayed away precisely because it had not felt like a “party” worth joining.

Now, conditions are different, Mr Chew says. With interest rates down to near 1.2 per cent and Singapore equities offering dividend yields of around 5 per cent, investors can earn meaningful income while retaining upside linked to earnings growth.

Over time, markets tend to make new highs as earnings and dividends compound – a reminder that “waiting for better entry points” often results in missed compounding opportunities, he says.

Further case for optimism

Adding to the valuation story, the rise of the STI has been driven by multiple factors, including solid economic growth and corporate fundamentals which led to earnings and dividend growth.

A key driver has been the strategic revival of Singapore’s equity market by policymakers.

In February 2025, the Monetary Authority of Singapore (MAS) and the Financial Sector Development Fund announced a $5 billion Equity Market Development Programme (EQDP). The EQDP aims to strengthen the local asset management and research ecosystem and increase investor interest in Singapore’s equities market.

At the same time, efforts to streamline listing and regulatory requirements, along with Singapore Exchange’s dual listing arrangement with Nasdaq – the US stock exchange that is the primary listing venue of many technology giants – could make Singapore more attractive to higher-growth companies, drawing more international capital.

Singapore’s policy-engineered uplift carries echoes of similar structural reforms in other markets such as Hong Kong’s Connect schemes and Japan’s governance push. 

For Singapore, the ingredients of stability, transparency and fiscal prudence are already in place. If liquidity and breadth catch up, the result could be a more dynamic equity ecosystem that rewards patient investors.

StashAway’s Mr Yeo says: “Put together, these policy measures could create a self-reinforcing virtuous cycle: more capital improves market liquidity, which attracts more investors and supports higher valuations.

“Higher valuations, in turn, draw better quality listings that enhance the market’s overall appeal, generating further capital inflows and sustained price appreciation.”

Still, optimism must be tempered by realism. 

Structural change takes time to bear fruit. Corporate behaviour, investor participation and global macro conditions all determine whether reforms translate into sustained returns.

History suggests that transitions from reform to revaluation seldom happen within a year or two. Japan’s governance overhaul, for example, began years before its stock market re-rated meaningfully. Similarly, Singapore investors might face multi-year consolidation phases where prices move sideways.

For long-term investors, that is not necessarily a bad outcome, especially when there are dividends while waiting for the run-up.

But there is an opportunity cost to bear in mind. Global markets do not pause while domestic reforms unfold. By staying Singapore-only in hopes of policy-driven upside, investors risk missing exposure to faster-growing regions or global structural trends like artificial intelligence (AI), renewable energy or healthcare innovation, experts say.

The key is balance: maintaining exposure to Singapore while ensuring the portfolio remains globally diversified across geographies and themes. The STI is not an all-weather index, but it can play a stabilising role as part of a broader allocation.

So, what are the opportunities?

Mr Chew underscores several themes driving the Singapore market:

Large caps like telco Singtel, asset manager and operator Keppel, and energy and urban solutions provider Sembcorp Industries are monetising non-core assets, unlocking capital for shareholders through dividends or buybacks.

The sharp drop in interest rates improves the outlook for real estate investment trusts (Reits), whose earnings visibility rises as borrowing costs fall.

A revival in capital expenditure, particularly in AI data centres, renewable energy and domestic infrastructure, which is driving corporate earnings higher.

A better approach is not timing but gradual deployment and diversification, especially after strong rallies. This disciplined positioning reduces behavioural pitfalls and helps you stay the course, Mr Chew says.

Macquarie Equity Research, led by Mr Jayden Vantarakis, expects banks, which account for half of the weightage in the STI, to be the key drag on the index following two years of strong performance. Lower interest rates could pressure their revenues, it says. 

Within the financial sector, its top picks are IFAST and OCBC for wealth exposure. It has an underperform rating on DBS.

Among the large-cap stocks, its top picks are Hong Kong-based conglomerate Jardine Matheson, Singtel, Keppel and real estate manager CapitaLand Investment, for their restructuring play.

In the light of the EQDP, small caps should do well as capital flows broaden beyond the STI blue chips. Among the stocks Macquarie likes are healthcare-related Parkway Life Reit and palm oil producer First Resources.

Mr Ben Powell, chief investment strategist for the Middle East and Asia-Pacific at the BlackRock Investment Institute, offers a complementary global view. He says the current environment favours active positioning.

“Mega forces are transforming the global economy and markets,” he says, citing AI’s capital-intensive buildout, geopolitical fragmentation and demographic shifts as dominant themes.

BlackRock remains pro-risk, overweight on US equities on the AI theme, and sees opportunities in Japan, Taiwan, South Korea and India. 

Within this context, Singapore can remain part of a balanced portfolio, but investors must align allocations with global structural trends rather than stick to isolated exposure.

Mr Chung at Endowus echoes this long-term, portfolio-first perspective. The focus should be less on price levels and more on drivers, specifically, whether earnings momentum and policy support remain intact, he says.

He cautions investors to contextualise Singapore within global portfolios. The best way forward, he suggests, is broad diversification, using Singapore equities for stability, income and exposure to domestic and regional growth, as well as less currency-related risks.

Reits 

For income-oriented investors, one of Singapore’s enduring strengths is its Reits market.

With average yields of 4 per cent to 5 per cent, Singapore Reits offer reliable income that can complement bonds while offering potential capital appreciation linked to property and economic cycles, Mr Yeo says.

Declining interest rates also benefit Reits by easing refinancing pressures and borrowing costs, while demand in resilient sectors such as industrial, healthcare and data centres remains firm.

Secular trends also favour selective segments:

• Industrial and logistics Reits benefit from e-commerce growth and supply-chain resilience initiatives.
• Healthcare Reits enjoy demographic tailwinds as Singapore and the broader region age.
• Data centre Reits ride the surge in AI and cloud computing infrastructure demand.

Macquarie’s team prefers S-Reits over banks on the tailwind of lower rates. Its top picks are CapitaLand Integrated Commercial Trust, Parkway Life Reit, Mapletree Logistics Trust, Mapletree Pan Asia Commercial Trust and Frasers Logistics & Commercial Trust. 

Exchange-traded funds (ETFs) tracking Singapore Reits offer an attractive alternative that addresses both the income and growth dimensions of portfolio construction, Mr Yeo says.

Avoid concentrated bets

Singapore equities can play a role, particularly for income and stability, but relying too heavily on any single market increases concentration risk. It also means missing out on growth engines elsewhere, experts say.

Before considering stocks or other investment strategies, investors should think in terms of portfolio design, Mr Chung says. 

“Having a clear view of one’s goals, time horizon and risk tolerance matters more than chasing market performance. Every dollar invested should serve a purpose, with risk taken only where it fits the intended outcome,” he says.

Singapore equities have done well, but other Asian markets delivered stronger returns over the past year, with South Korea, Hong Kong and Japan outperforming the S&P 500 by a wide margin, he says. 

Market leadership changes often when investors least expect it. This reinforces the importance of diversification across regions and asset classes. 

Mr Chung says broad diversification and passive investing help investors stay disciplined, reduce behavioural mistakes, and improve the odds of achieving long-term outcomes.

Mr Yeo says the goal is not to predict exactly when Singapore’s market reforms will bear full fruit and perfectly time the entry into STI, but rather to maintain appropriate exposure that reflects both the opportunity and the uncertainty inherent in any market undergoing fundamental change. 

A measured allocation to the STI can sit comfortably alongside a globally diversified portfolio that maintains exposure to key long-term structural trends like AI and technology. 

This way, investors can participate in potential upside while remaining anchored to the broader principles of diversification and risk management that serve portfolios well in the long run, he says.

How to know when to sell?

Phillip Securities’ Mr Chew says when a stock trades meaningfully above its perceived value, investors should reassess their position but recognise that upward momentum can persist for some time. 

In such situations, rigid price targets can lead to premature selling, which is why it is more effective to regularly review whether the original investment case still holds and whether valuations remain supported by fundamentals. 

Portfolio considerations also come into play, as trimming positions that have grown disproportionately large can help manage risk and avoid emotionally driven decisions, he says.

Correction note: In an earlier version of this story, we wrongly attributed a statement on how Singapore can be part of a balanced portfolio. This has been updated.

This story was first published in The Straits Times on Jan 17, 2026.