STI could reach 10,000 by 2040; Singdollar could also hit parity with greenback: DBS report

[SINGAPORE] The Straits Times Index (STI) could rise to nearly 10,000 by 2040 if historical prices hold, according to DBS’ Singapore 2040 report.

The Singapore dollar could also reach parity with the US dollar by 2040, amid policy and safe-haven appeal, said the report released on Wednesday (Oct 22).

Singapore’s benchmark index has seen strong year-to-date performance, driven by fading US exceptionalism, which is attracting global funds inflow and Singapore’s safe-haven status amid global geopolitical and tariff uncertainties.

The market also has attractive yield and price-to-book valuations, low domestic interest rates, a strong Singapore dollar, and is receiving support measures from the government to revitalise the Republic’s equity market.

“The ability to offer attractive dividend yields appears to have become part of the Singapore equity market’s DNA,” said the report.

Yet, the market remains “relatively underinvested”.

Singapore’s stock market rally is also broadening in recent years, with more sectors driving the rise of the STI this year. Apart from financials, growth was also seen in the real estate, industrials, communication services and information technology sectors.

Looking ahead, DBS expects three funding sources to drive Singapore equities higher.

Passive funds should drive growth in large-cap stocks, where safe-haven inflows from US and europe passive funds more than offset outflows from active funds.

SEE ALSO

The government’s Equity Market Development Programme should also help sustain interest in small-cap stocks.

Furthermore, stocks in the income and staples categories across all market capitalisations should benefit from the fall in interest rates as depositors redeploy their funds from money market, fixed deposits and high-yield current and savings accounts.

But the bank also noted that a culture of risk-taking is necessary for the next leap.

“Singapore faces a critical juncture in attracting high-growth technology companies to list locally rather than on international exchanges,” the report said.

The STI’s current bank-heavy composition, while providing stability and yield, also limits exposure to transformative growth sectors.

Thus, Singapore’s traditionally conservative investment culture must evolve to accommodate higher-growth, higher-valuation stocks that reflect the new economy’s dynamics.

Meanwhile, DBS also forecasts a prolonged period during which Singapore could see significant exchange-rate appreciation.

The US dollar may enter a multi-year period of correction, while productivity-led growth in Singapore could be an organic driver of exchange-rate appreciation.

The city-state will also likely continue to see safe-haven flows in the coming years as it doubles down on efforts to attract investments in digital and physical infrastructure, tech-led manufacturing and the green transition, while also deepening its capital market.

The Republic should also be able to maintain its current account surplus amid its value-added contribution to exports across goods and services.