DBS Group Research is not deviating from its projection for the Straits Times Index (STI) to hit nearly 10,000 by 2040 in a report issued Dec 11.

 

In order for the STI to reach this presumably giddy height, analysts Yeo Kee Yan and Foo Fang Boon make the following assumptions &mdash continued improvement in investor sentiment, reforms to revive the Singapore equity market and a benign interest-rate environment.

 

In the more foreseeable year ahead, the investment theme for the STI in 2026 is &ldquo ride secular winners, seek SMC [small- and mid-cap] opportunities&rdquo , say the DBS analysts.

 

Following 2025&rsquo s stellar performance, they expect the STI to experience a &ldquo more moderate&rdquo gain of around 8% to reach 4,880 by end-2026. Despite global economic uncertainty and market volatility, they believe the Singapore market to remain resilient, underpinned by MAS equity market support measures such as the EQDP, the country' s &ldquo safe-haven&rdquo status and attractive dividend yields which are forecasted to reach 4.5% next year.

 

The report points out that with forecasted FY2026 EPS growth &ldquo accelerating&rdquo to 8.8%, the forecasted FY2026 price earnings growth of 1.5 times for the STI is now closer to the indices of similarly developed markets.

 

According to Yeo and Foo, local banks, Singtel, SGX, UOL and industrial heavyweights &mdash such as ST Engineering, Seatrium and SATS &mdash will support broad growth momentum in earnings for STI stocks.

 

These picks were chosen for near-term catalysts, and their ability to ride on Singapore&rsquo s longer-term economic growth, according to Yeo and Foo.

 

SMC top 10 picks

This year, much of the market vibrancy was driven by market boosting measures including a $5 billion fund to be given to fund managers to invest in stocks outside the STI, under what is called the Equity Market Development Programme, or EQDP.

 

Now, Yeo and Foo recognise the limits of the impact of the EQDP and remain selective for SMCs. For the new year, they are focusing on counters with potential for further re-rating through either value unlocking or earnings recovery as well as dividend stocks with sustainable income, which are likely to be integral to the strategies of EQDP asset managers.

 

Their top 10 SMC picks include Guocoland and Hotel Properties for potential value unlocking opportunities iFAST, Nam Cheong, SIA Engineering and UMS Integration for earnings growth or recovery potential and Centurion Accommodation REIT, NTT DC REIT, LendLease Global Commercial REIT and Netlink NBN Trust for sustainable income.