A shift is taking shape
However, as trade tensions and supply chain uncertainties rise, large companies that are globally exposed are facing higher risks. Therefore, there is an expectation that US small and mid-caps may start to turn around in the coming months.
This shift could influence the fortunes of the small and mid-cap sectors around the world, although Singapore offers even greater structural tailwinds for mid-caps. The $5 billion Equity Market Development Programme (EQDP), launched in February 2025 to revitalise the Singapore stock market, is specifically aimed at boosting liquidity and investor interest in Singapore’s small and mid-cap stocks.
This was followed by the launch of the iEdge Singapore Next 50 indices in September 2025, which track the performance of Singapore’s next 50 largest and most liquid listed companies beyond the largest 30. These indices spotlight promising mid-cap companies such as CapitaLand Ascott Trust, the largest lodging trust in the Asia Pacific, and Keppel REIT, which manages commercial properties in some of Asia’s key business districts.
Less volatile
Unlike the STI, where financial stocks make up more than half of its composition, the Next 50 index is dominated by Real Estate Investment Trusts (REITs), which account for 43% of its weight. This REIT-heavy structure gives the Next 50 index distinctive characteristics. For example, the average dividend yield of close to 5% is higher than the STI’s average.
The high dividend and REIT-heavy features of Singapore’s mid caps appeal to income-seeking investors who are less speculative and have longer time horizons, helping to dampen the index’s volatility. Notably, its three-year standard deviation is only marginally higher than the STI’s, despite the lack of “blue-chip” constituents.
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Mid-caps set to outperform over the long term
Over the next five to 10 years, we expect Singapore’s mid-caps to outperform large caps, driven by their less mature growth phase and correspondingly stronger earnings potential. As such, our Capital Market Assumptions (CMA) Committee projects mid-caps to deliver an average annual return of 6.7%, compared to 6% for large caps. Despite the higher return, we project only a marginal increase in volatility for mid-caps, with a long-term standard deviation of 13.7% versus 13.4% for large caps.
But even in the near term, Singapore mid-caps have the potential for enhanced performance as a likely benefactor of rising intra-regional trade and Asia’s favourable consumer demographics. In a slower global growth environment, this sector can potentially leverage Singapore’s inherent strengths — such as robust governance standards, low correlation to global markets, and the relative defensiveness of the Singapore dollar — to deliver more resilient performance.
Portfolio adjustments
Many investors, particularly institutions, remain under-allocated in mid-cap stocks. While Singapore institutions typically set aside a portion of their global portfolios for domestic assets, these allocations have historically been positioned for stability rather than growth potential.
By adding more Singapore mid-cap stocks to the mix, institutional investors can potentially enjoy higher returns without materially increasing risk. Based on our latest CMAs, our analysis shows that adding 10% Singapore bonds, 10% Singapore large cap equities, and 5% Singapore mid cap equities to a typical global-diversified balanced portfolio — comprising 60% global bonds and 40% global equities — could raise the portfolio’s expected annualised return by 16 basis points (bps) and reduce volatility by 37 bps on a five-year average.
This underscores our view that incorporating a well-diversified selection of Singapore mid-cap stocks within an existing balanced portfolio can deliver significant efficiency benefits, particularly for investors who are Singapore-based or have Singapore dollar requirements.
Chong Jiun Yeh is the Group Chief Investment Officer, UOB Asset Management
