DBS raises STI year-end target to 5,850 after earnings lift

Further market gains are expected to depend on corporate earnings.

DBS Group Research has raised its year-end target for the Straits Times Index (STI) to 5,850 and introduced a 12-month target of 6,110 following stronger corporate earnings and higher valuations for major banks.

The STI closed at 5,755.36 on 31 August.

DBS’s bottom-up target, based on the combined 12-month price targets of STI constituents, increased to 6,430 after the Q2 results season.

The research house said much of the increase came from higher target prices for index-heavyweight banks. OCBC accounted for 26.4% of the projected upside in the bottom-up target, followed by Singtel at 11% and Jardine Matheson at 9.8%.

DBS said Singapore equities remained supported by stronger economic growth, attractive dividend yields, safe-haven demand and Monetary Authority of Singapore measures to develop the stock market.

It forecasts Singapore’s economy to expand 4.3% in 2026 and 3% in 2027. STI dividend yields are estimated at 4% for FY2026 and 4.2% for FY2027.

However, DBS expects further gains to be driven mainly by earnings rather than additional valuation expansion.

The STI was trading at 16.7 times its 12-month forward earnings, two standard deviations above its 10-year average. DBS said it could be difficult for the index to rerate further in the near term.

Its eight preferred STI stocks are OCBC, Singtel, UOL, City Developments, Yangzijiang Shipbuilding, Seatrium, ST Engineering and SATS.

DBS also expects no changes to the index’s constituents during the September review. Although Frasers Logistics & Commercial Trust ranked near the removal threshold, the research house assessed its immediate removal risk as low.

Meanwhile, the CGS Fullgoal Singapore Next 50 ETF is scheduled to list on 3 September. It will be the first actively managed exchange-traded fund benchmarked against the iEdge Singapore Next 50 Index and will allocate 80% of its portfolio to the index’s constituents.

DBS said a strong reception for the fund could generate additional flows and liquidity for Singapore’s small- and mid-cap stocks.

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