Straits Times Index Still Attractive At 5400? My Deep Dive Analysis

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 The Straits Times Index (STI) had been range-bound for over a decade, earning it monikers such as the "Super Terrible Index". 

The past two years seem to have rewritten the script, with the STI breaching the historic 4,000 mark in 2025 and continuing on to break 5,000 in 2026. Investors may be feeling apprehensive with our flagship index trading at unprecedented highs. 

So is the STI still attractive at 5400? We'll run a deeper dive on the index's underlying sector earnings, and answer the burning question: Is this rally fundamentally justified, or am I buying at the top?

Financial Services, Wealth Giants (~60% Weightage)

  • Key Players: DBS, OCBC, UOB, SGX
  • Narratives: Our "Big Three" banks are the gravitational center of the STI, taking up a ~55% weightage on the index. Local banks continued posting record high income, running against fears of falling interest rates compressing net interest margins (NIM) and crippling bank profits. On the other hand, SGX is poised for a year of bumper profits as the company reports record high trading volumes in equities and derivatives. 
  • Main Drivers 
    • NIM Bottoms Out: The 3-month compounded SORA has stabilized near its cyclical floor of 1.0% to 1.1%. This means the worst of the NIM compression is behind us, and margins appear to be stabilizing earlier than expected. DBS is poised for 10% earnings growth in 2027, according to Citi analyst Tan. 
    • Singapore's Wealth Surge: Singapore's status as a global safe haven has accelerated a massive wave of wealth management asset-under-management (AUM) inflows. DBS reported record wealth management fees of S$907 million in 1Q26, while OCBC registered a 34% YoY jump. Because wealth fees require no regulatory capital buffers, they expand return on equity (ROE) and fund high payouts, massive share buybacks, and special dividends.
    • S$6.5 Billion EQDP Catalyst: Equities momentum for SGX is likely to continue as EQDP funds are still being deployed, with additional support from wealth inflows to Singapore with its safe haven appeal. 

Industrials, Communications, Technology (~20% Weightage)

  • Key Players: Singtel, ST Engineering, Keppel, Yangzijiang Shipbuilding, Venture Corp
  • Narratives: Industrials have officially overtaken S-REITs as the second-largest sector weighting in the index, and they are important engines in the STI with double-digit earnings expansion. Singtel’s FY2026 underlying net profit grew 12.1% year-over-year to S$2.77 billion, while overall net profit jumped 40% to S$5.61 billion. 
  • Main Drivers
    • Unprecedented Order Books: Geopolitical friction has led to structurally higher global defense budgets, keeping ST Engineering's order books at record highs with a 49% growth in 2025. Meanwhile, Yangzijiang Shipbuilding is executing high-margin clean-energy builds to meet global shipping decarbonization standards.
    • AI Boom: May 2026 Non-Oil Domestic Exports (NODX) surged 38.4% YoY—the fastest expansion since 2003—driven by semiconductor test and hardware equipment demand. This hardware order boom flows directly into the earnings profiles of Singapore-listed tech supply chain names such as Venture.
    • AI Infrastructure Demand: Singtel and Keppel are direct beneficiaries of the global data center capex boom, as providers of data center infrastructure. Historically, Keppel was viewed as a cyclical, capital-heavy offshore and marine conglomerate. The "New Keppel" operates with an asset-light model, as a global asset manager focused on alternative real assets in infrastructure, clean energy, and digital connectivity. 

Real Estate and S-REITS (~14% Weightage)

  • Key Players: Capitaland Integrated Commercial Trust, Ascendas REIT, HongkongLand, CapitalandInvest
  • Narratives: S-REITs have had a brutal couple of years due to the rate-hike cycle. However, the sector now trades at a forward P/B of 0.91x, a discount to its 10-year historical average of 1.0x. 
  • Main Drivers
    • SORA Bottoming: With SORA bottoming, loans maturing in late 2026 and 2027 are being refinanced at lower marginal costs compared to their peak rolling averages. This reverses three years of continuous DPU compression.
    • Commercial Supply Drought: Singapore's core CBD office vacancy rate is at a record low of 3.3%, with no major completions scheduled until 2028. This supply ceiling gives major commercial landlords immense pricing power, leading to mid-to-high-single-digit rental reversions.

Putting It All Together

Table taken from: https://secure.fundsupermart.com/fsmone/article/rcms378640/ifast-investment-outlook-3q-2026-heres-what-were-buying-next


The STI is estimated to grow its earnings at an annualized compound growth rate of ~9.4% from FY26 to FY28. Then applying a fair P/E ratio of 15X to the estimated Earnings Per Share of 399.1, iFAST provides a target of 5,987 for the STI by FY28. If there's one thing I want to highlight through this article, it's that the STI has truly transformed itself over the years. 

The STI from a decade ago was a weaker, stagnant, "dividend only" play. For almost 15 years post-2008 (the Global Financial Crisis), the STI was locked in a horizontal channel, swinging relentlessly between 2,800 and 3,400 points.

Today, the STI is structurally engineered for capital efficiency, active value-unlocking, asset-light corporate structures, and massive safe-haven wealth capture. It has transitioned from a simple "dividend trap" into a robust, total-return compounding engine. As I maintain a huge exposure to Singapore equities, my portfolio has benefitted largely from the relentless rallying from 2024 to now. All Huat !!





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