Small, mid-cap stocks ride MAS liquidity boost

[SINGAPORE] The Republic’s small and mid-cap stocks are gaining fresh momentum, buoyed by initiatives from the Monetary Authority of Singapore (MAS) to deepen the equity market and broaden investor participation.

On Jul 21, MAS announced it will inject S$5 billion into Singapore equities through its Equity Market Development Plan (EQDP). The first tranche – a combined S$1.1 billion – was allocated to Fullerton Fund Management, JP Morgan Asset Management and Avanda Investment Management.

These measures are already showing results, said analysts. Smaller counters, long overshadowed by large caps, are attracting institutional flows and trading at stronger valuations as liquidity improves.

According to data from Singapore Exchange (SGX), the FTSE ST Mid and Small Cap Index rose 9 per cent in the third quarter of FY2025 to Aug 12, compared to just 1.8 per cent in the first half of the fiscal year.

It also outpaced the blue-chip Straits Times Index, which rose 7 per cent over the same period.

The FTSE ST Mid and Small Cap Index, which tracks 74 constituents with a combined market capitalisation of S$176 billion, recorded S$382 million in net institutional inflows in Q3. Almost half of the increase – or some S$180 million – flowed into eight technology stocks, led by iFast, Frencken, Venture, UMS and Valuetronics.

Liquidity boost from MAS

Analysts say the EQDP has drawn stronger institutional interest to smaller names.

“The MAS’ EQDP has provided a structural boost to the Singapore equity market by drawing stronger institutional interest toward small and mid-cap stocks,” said Joel Phua, research analyst at FSMOne Singapore.

He added: “These inflows – even if not very large – can have an outsized impact on small-cap prices, given their thinner liquidity.”

On a macro level, the lower interest rate environment is also “very positive” for small and mid-cap stocks as they tend to be leveraged higher, said David Poh, head of investment and ESG strategies for South Asia at asset manager Amundi.

Investors are turning to small and mid-cap names for higher returns, now that large caps are already fully valued, added Poh.

Companies with strong fundamentals and clear revenue outlooks have already experienced notable price re-ratings, with price-to-earning (PE) ratios above their 10-year averages, said Phua of FSMOne.

For example, UMS’ current PE ratio is 23.9, almost double its 10-year average of 12.7, while Frencken’s PE ratio is 15.7, higher than its 10-year average of 11.6.

Signs of improved sentiment are visible in the market.

Terence Wong, chief executive officer of fund management company Azure Capital, said that recent financial results briefings of small and mid-cap companies are “a lot more crowded” with more analysts and media attending. “Companies are also receiving a lot more enquiries from investors,” he added.

Share placement exercises are picking up too, with more companies feeling confident about raising funds now that their valuations have risen, said Wong.

For example, Sanli Environmental, which has a market capitalisation of S$70 million, announced its first share placement since listing in 2017, issuing 33.3 million new shares at S$0.12 each. The placement was fully taken up.

Sectors driving gains

Technology stocks have emerged as favourites among institutional investors.

Phua said that small and mid-cap stocks in the industrials and the technology sub-sectors have observed higher returns due to strong financial results in the first half of FY2025 and healthy order books.

Poh also sees opportunities in technology, adding that there are a few tech companies in Singapore that allow investors to be exposed to artificial intelligence, but without the volatility of foreign exchange and high valuations seen in other markets.

“These companies have very strong fundamentals, healthy balance sheets, and pay good dividend yields,” said Poh.

Property, construction and commodity sectors are also leading the growth of small cap companies due to a combination of strong earnings and improved liquidity from the EQDP, added Paul Chew, the head of research at Phillip Securities Research.

Can the party last?

Phua believes that the current interest in small and mid-cap stocks could continue into early 2026, supported by subsequent deployments of EQDP funds.

However, global macro shocks, such as renewed tariff pressures, could pose challenges, as smaller companies are likely to be more vulnerable to such headwinds.

Small caps, which offer higher returns, can also experience sharper price swings than larger names if investment flows reverse due to their lower liquidity and higher volatility, he added.

Ultimately, investors will have to pick stocks with good fundamentals, said analysts.

Wong of Azure Capital said that while some investors have previously been forced to sell their shares at a discount due to illiquidity, astute investors can pick good stocks where the dividends cover the entire cost of their investment, with any additional earnings as bonus.