STI Rallies 52 Percent as Small Caps Lag Behind
The Straits Times Index surged past 5,800 points, outpacing global peers. However, liquidity remains concentrated in three major banks, leaving small and mid-cap stocks underperforming.
The Straits Times Index closed above 5,800 points in early September. It gained 52 percent over 19 months. This performance outpaced the S&P 500 and Nasdaq indices. The five-year return in Singapore dollars reached 125 percent. This figure is double the MSCI World Index return of 61 percent. The Hang Seng Index returned only 11.95 percent over the same period. The ten-year STI return is triple the Hang Seng figure of 58 percent.
Market liquidity expanded significantly. Daily average turnover crossed S$2 billion for most of 2026. This doubled the previous S$1 billion baseline. SGX share prices doubled between February 2025 and September 2026. UOB Kay Hian shares more than doubled in value. Turnover velocity increased by 36 to 45 percent. This remains lower than developed markets where the figure exceeds 100 percent. The market shows room for further trading activity.
Concentration in Major Banks
DBS share price nearly doubled from S$39.50 to S$79. It now accounts for 29 percent of the STI. OCBC and UOB add another 29 percent. Together, these three banks comprise 58 percent of the index. This concentration reflects Singapore's financial center status. It raises questions about market health. The Equity Market Development Programme boosted these large caps. It did not lift small and mid-cap stocks equally.
The SGX iEdge Next 50 index offers a 5.5 to 5.8 percent yield. This exceeds the STI payout of 4 percent. Small and mid-cap stocks lack sufficient liquidity. They also have limited free float from Temasek-linked entities. Institutional investors avoid these stocks due to low trading volumes. Brokers have little incentive to cover them. The Grant for Equity Market Singapore scheme provides some support. Mixed liquidity hampers product creation. The market needs broader interest beyond the top 30 stocks.
Challenges for Small Caps
CPF investment limits can be deployed into STI ETFs. This has boosted retirement savings as the index hits highs. The STI dividend yield matches the special account interest rate. However, the special account is guaranteed. The STI carries capital risk. The Next 50 index targets smaller companies. These firms need higher free float. They require sustained retail and institutional confidence. Without this, they cannot attract large investors. The current structure favors large, liquid names. Small caps remain an afterthought in the rally.
The Next 50 index needs a CPF boost to gain traction. This would spread interest beyond the STI 30. It would support emerging growth stocks. These stocks carry higher risk but offer higher yields. The market must accept this risk profile. Brokers need incentives to cover these firms. Liquidity must improve to create viable products. The current focus on big banks is unsustainable. A broader market requires participation from mid-cap stocks. The CPFIS must engage with the Next 50 act. This is essential for a balanced market.
Path Forward for Liquidity
The STI is approaching JP Morgan's bull case of 6,000 points. The target has been revised to 7,000 points. This assumes continued liquidity growth. Free float must increase across the board. Family-owned small caps need more trading activity. The market must support risky growth stocks. Interest must spread to a wider range of firms. The current concentration in three banks is a bottleneck. Small caps are the missing piece. They need institutional backing. They need retail confidence. The CPFIS can drive this change. The Next 50 index is ready. It needs the capital to prove its value.
