[SINGAPORE] The Straits Times Index (STI) could rise to nearly 10,000 points by 2040 if historical return patterns hold, DBS’ Singapore 2040 report indicated.
The Singapore dollar could also reach parity with the greenback by 2040, amid policy and safe-haven appeal, the report released on Wednesday (Oct 22) said.
Singapore’s benchmark index has notched a strong year-to-date performance, driven by fading US exceptionalism, which is attracting global fund inflows, as well as the city-state’s safe-haven status in an environment of global geopolitical and tariff uncertainties.
The STI closed at 4,393.92 points on Wednesday, up 16 per cent year to date. A target of 10,000 means that the index would need to see a gain of 127.6 per cent in the next 15 years.
The market also has attractive yield and price-to-book valuations, low domestic interest rates and a strong local currency. It is also receiving support measures from the government to revitalise its equity market.
“The ability to offer attractive dividend yields appears to have become part of the Singapore equity market’s DNA,” said the report.
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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, the real estate, industrials, communication services and information technology sectors also recorded growth.
Looking ahead, DBS expects three funding sources to drive Singapore equities higher.
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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.
The government’s Equity Market Development Programme should also help to 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 US dollar has fallen 5 per cent against the Singdollar year to date, with one greenback worth S$1.30 on Wednesday. This implies the Singapore dollar will have to strengthen by 30 per cent to reach parity with the US dollar.
The Republic should also be able to maintain its current account surplus amid its value-added contribution to exports across goods and services.
Overall, DBS expects Singapore’s gross domestic product to more than double to between US$1.2 trillion and US$1.4 trillion by 2040, anchored by capital accumulation, human capital and productivity gains.
Real GDP is projected to grow at an average of 2.3 per cent annually between 2025 and 2040, the report said.
This will likely be driven by a dominant services sector, a resilient manufacturing presence and a modestly larger construction sector.
Within services, Singapore is expected to deepen its strengths as a high-value entrepot, global finance hub and digital IT services leader, as well as expand its care economy.
Manufacturing will likely be anchored by electronics and precision engineering, chemicals and biomedicals.
Singapore also stands out in generative artificial intelligence adoption, with the government and corporates leading a proactive reskilling push, the report said.
