Executive Summary

Singapore equities have undergone a substantial re-rating. The Straits Times Index (STI) is trading near record levels, with its price-to-earnings multiple materially above the levels investors became accustomed to during much of the previous decade. The starting income proposition has also weakened as valuations expanded.

However, treating the STI as a homogeneous market obscures an important concentration effect. DBS (SGX: D05), OCBC (SGX: O39) and UOB (SGX: U11) now account for approximately 57% of the index, and their stronger profitability provides some fundamental justification for higher valuations. The more useful investment question is therefore not whether “Singapore is expensive”, but where valuations have moved furthest relative to fundamentals and where opportunities remain across blue chips, REITs and companies outside the STI.

---

A Major Re-Rating Has Changed the Starting Point

The magnitude of the STI’s advance matters because the valuation environment has changed with it.

After ending 2023 at around 3,240 points, the STI rose to approximately 3,787 at end-2024 and 4,524 at end-2025. The rally accelerated further in 2026, taking the index above 5,000 for the first time in February and into the 5,700 range by August.

The latest State Street SPDR STI ETF data illustrates how far valuation has expanded. As at 17 August 2026, the portfolio traded at 17.56 times trailing earnings and 1.83 times book value. Its distribution yield was 3.05%, although ETF distribution yield should not be treated as directly interchangeable with the underlying index’s prospective dividend yield.

These multiples represent a very different starting point from 2023, when the STI was trading close to 11 times trailing earnings and offered a substantially higher income yield.

The distinction is important. Higher prices are not inherently evidence of overvaluation if earnings and returns on capital have improved with them. But investors today are paying materially more for each dollar of underlying earnings and book value, leaving less room for disappointment.

STI Valuation	Aug 2025	Aug 2026	Change
Index level	~4,200	~5,700	~35% higher
P/E	~13x	~17–18x	Significant re-rating
Price-to-book	~1.2–1.3x	~1.8x	Meaningfully higher
Dividend yield	~5%	~4%	Income cushion compressed

The comparison shows that the STI’s rise has not been driven by earnings alone. Over roughly one year, the index has risen by about one-third, while valuation multiples have expanded materially and the dividend yield has compressed. Investors are therefore paying more for each dollar of earnings and book value than they were a year ago.

The STI Is Increasingly a Bank-Dominated Market

The headline index also provides an incomplete picture because its performance is highly concentrated.

As at 17 August 2026, DBS represented 29.08% of the STI, OCBC 19.01% and UOB 9.26%. Together, the three banks accounted for approximately 57.4% of the entire index. Singtel (SGX: Z74), SGX (SGX: S68), ST Engineering (SGX: S63) and Keppel (SGX: BN4) added another sizeable group of major constituents.

This concentration changes how the STI should be interpreted.

A strong move in the three banks has a much greater effect on the index than equivalent gains across most REITs, property companies or smaller industrial names. Record index levels therefore do not necessarily indicate that Singapore-listed equities have experienced a uniform re-rating.

This helps separate the market into three broad groups.

1. The Banks: Re-Rated, but Fundamentally Stronger

DBS, OCBC and UOB have been the principal beneficiaries of the re-rating. Importantly, this has not been driven by sentiment alone.

The earnings model has broadened beyond the interest-rate cycle. Wealth management and fee-based income have become increasingly important, while capital positions remain strong and shareholder distributions have increased. During the latest reporting period, wealth-management and other fee income helped all three banks offset declining net interest margins.

This matters particularly when assessing price-to-book valuations.

A bank capable of sustaining materially higher return on equity deserves, all else equal, a higher price-to-book multiple than the same bank operating at structurally weaker profitability. Comparing today’s bank-heavy STI mechanically against its historical average therefore risks ignoring genuine improvement in business economics.

The tension is that the valuation now embeds more of that improvement.

The market no longer requires merely respectable bank earnings. Sustained wealth-management growth, resilient fee income, controlled credit costs and high returns on equity are increasingly necessary to support premium valuations. A faster-than-expected normalisation in profitability would therefore matter much more today than it did when valuations were close to historical lows.

Large Non-Bank Blue Chips Offer a Different Earnings Story

The next segment consists of major companies such as Singtel, ST Engineering, Keppel and Sembcorp Industries.

These should not automatically be characterised as neglected laggards. Several have already experienced substantial share-price gains. The more relevant question is whether their earnings transformation has further runway.

Their drivers also differ materially from those of the banks.

ST Engineering benefits from multi-year defence and commercial aerospace demand. Singtel has been reshaping its capital base through asset monetisation while developing digital infrastructure and expanding shareholder returns. Keppel continues its transition toward an asset-light model focused increasingly on recurring fee-based income. Sembcorp has developed into a substantially different utilities and renewable-energy platform from its historical structure.

This creates a distinct analytical opportunity: companies whose valuations have risen, but where the durability and maturation of new earnings engines may matter more than the direction of bank profitability.

The trade-off is that stock selection becomes critical. Transformation narratives only create value when they ultimately translate into higher sustainable cash flows and returns on capital.

REITs Remain Disconnected From the Headline Index

The third market sits within Singapore’s REIT sector.

For many S-REIT investors, an STI near record levels bears little resemblance to recent portfolio experience. Higher financing costs, refinancing concerns and subdued distribution growth have prevented much of the sector from participating fully in the broader equity rally.

That creates an important valuation divergence.

Some REITs continue to offer materially higher income yields than the broad STI, and falling financing costs could provide a gradual earnings tailwind. But yield dispersion within the sector is itself informative. A high yield can represent genuine value, or compensation for weak assets, excessive leverage, deteriorating distributions or structural challenges.

The relevant opportunity is therefore not simply that REITs have lagged. It is that the sector’s uneven recovery creates scope to distinguish between trusts experiencing cyclical financing pressure and those facing more persistent operating problems.

For income-oriented investors, this may be one of the clearest areas where headline STI valuation statistics fail to describe the underlying market accurately.

Looking Below the STI: A Structural Catalyst, Not an Investment Thesis

The fourth opportunity set lies outside the benchmark entirely.

Singapore’s Equity Market Development Programme (EQDP) has become materially larger. MAS expanded the programme from its original S$5 billion to S$6.5 billion in February 2026, with the intention of strengthening institutional participation and liquidity in Singapore equities.

This potentially matters most below the largest index constituents.

Singapore has historically contained a substantial group of smaller companies with limited analyst coverage and lower trading liquidity. Greater institutional capital and research attention could improve price discovery for selected companies and broaden participation beyond the largest banks and blue chips.

However, institutional flows should be treated as a potential catalyst rather than a substitute for fundamentals.

Smaller companies typically carry higher liquidity risk, narrower business diversification and greater company-specific exposure. The more durable investment cases will still depend on cash generation, balance-sheet quality, governance, management execution and valuation. An improvement in institutional attention would strengthen an existing fundamental thesis; it should not be the thesis itself.

What the Re-Rating Changes

The most important change is not that attractive Singapore companies have disappeared.

It is that broad exposure now provides less valuation protection than it did several years ago.

When the STI traded near 11 times earnings with dividend yields above 5%, investors had a relatively wide margin for forecasting error. Today, returns are more dependent on sustained profitability and earnings growth.

That creates four analytically distinct opportunity sets:

1. Proven quality at higher valuations: predominantly the banks, where structural improvements are strongest but valuation tolerance is lower.
2. Further earnings transformation: large non-bank companies where recurring income, order books or corporate restructuring could continue improving earnings quality.
3. Income and recovery dispersion: REITs where valuation remains less demanding, but financial and asset-level risks vary considerably.
4. Under-researched companies outside the STI: potentially supported by broader institutional participation, but carrying greater liquidity and company-specific risk.

The common thread is increasing selectivity. A record index does not eliminate opportunities, but it raises the importance of identifying precisely what an investor is paying for.

Key Risks & Mitigating Factors

• Bank profitability normalisation. Lower net interest margins, slower fee growth or higher credit costs could reduce returns on equity and challenge current price-to-book premiums. Diversified fee income and strong capital positions provide some resilience but do not remove earnings sensitivity.
• Valuation compression. With the STI trading materially above its historical valuation range, even stable earnings could produce weaker returns if investors become less willing to pay current multiples. Stronger underlying business quality partly supports the re-rating, but the margin of safety is narrower.
• REIT yield traps. Higher yields may reflect financing pressure, deteriorating assets or unsustainable distributions rather than mispricing. Balance-sheet resilience and underlying property performance remain more important than headline yield alone.
• Mid-cap liquidity and governance risk. Greater institutional participation may improve market depth, but smaller companies remain more exposed to liquidity constraints and company-specific execution risk.
• Concentration risk. With approximately 57% of the STI represented by three banks, a reversal in bank sentiment or profitability would have an outsized impact on the benchmark even if other parts of the Singapore market remain resilient.

The Dividend Uncle Research View

The STI is clearly expensive relative to its recent history, but describing the entire Singapore market as uniformly expensive is increasingly unhelpful. Bank profitability has improved sufficiently to justify part of the index re-rating, although today’s valuations require that strength to persist. Meanwhile, REITs, transforming non-bank blue chips and companies below the STI present fundamentally different valuation and risk profiles.

The investment environment has therefore shifted from one in which broad-market cheapness was itself a significant advantage toward one where stock selection, valuation discipline and portfolio diversification matter more. The record-high STI should be viewed less as a single valuation signal and more as the aggregate result of several very different markets moving at different speeds.

---