The analysts see a "healthy cocktail” of tailwinds driving the market to greater heights. These include supportive value-unlock policies for the market such as direct action into Equity Market Development Programme (EQDP) funds, and initiatives to support more IPOs or dual listings.
More significantly, Singapore’s robust GDP growth is expected to benefit index earnings. On the back of “strong” tech manufacturing activity and sustained services sector growth, GDP grew 5.7% in 2Q2026 which was better than the Ministry of Trade and Industry’s 2-4% forecast for 2026. For Macquarie, this translates into a 6-7% 12-month forward EPS growth for the STI based on their measurement of a 0.8 to 0.9 times correlation between STI earnings and nominal/real GDP growth.
Macquarie admits that current valuations are no longer ostensibly '”cheap” with the market re-rating to 15 times forward P/E. However, they do not think that the valuation is excessive. With a forward dividend yield of 4.1%, the STI remains attractive, with the spread over the risk-free rate (SGD 10-year sovereign bonds) elevated at 2.3%, vs a long-run average of 1.74%.
Large caps dominate picks
The report is optimistic for the local banks, which account for around 59% of the STI. Due to a stronger US dollar and presumably expecting US Fed rate hikes, the analysts hint at conditions for interest rates to rise in Singapore. They believe that interest rates have reached a trough in 2Q2026 and are set to rise by 70 basis points over the next 12 months.
In particular, Macquarie favours UOB and OCBC with “outperform” ratings and valuations of . $45.16 and $27.76 respectively. Trading at a 20% P/E relative discount to DBS and 12% relative to OCBC, UOB is Macquarie’s “preferred” bank exposure. Meanwhile, at roughly 1.9 times P/B, OCBC offers an attractive mix of wealth strength, provision and capital buffers.
Among the telcos, Singtel is rated “outperform” at target $5.29. Macquarie believes that management’s guidance for ebit is “conservative” as it was made during uncertain times due to the Middle East conflict.
For industrials, the analysts believe Seatrium, currently trading at around $1.94 or 0.95 times P/B, offers a good risk-reward ratio for the counter. They expect a pickup in contract wins in 2H2026 after a quiet first-half of the year. They value Seatrium at $2.58 but with “neutral” rating.
For real estate, Hong Kong Land (HKL) and Capitaland Integrated Commercial Trust (CICT) are favoured. For the former, earnings are expected to grow due to recovery in Hong Kong office rents and value unlocking via asset recycling. At around 0.5 P/B, HKL’s valuation is “undemanding”. The target price is US$11 and the counter is rated “outperform”.
Meanwhile, CICT is expected to benefit from commercial rent growth in Singapore due to tight supply. The counter is Macquarie’s defensive Singapore pick for the sector and is rated “outperform” with target of $2.70.
Small and mid caps
In addition to STI constituents, Macquarie is also optimistic on several small and medium caps, including iFast and Frencken Holdings.
Based on its analysis of iFAST’s global peers, Macquarie thinks that it is possible for the investing platform to reach $100 billion in assets under administration in four years and scale up deposits of its digital bank business by 10 times.
At present, the bulk of the value in the business remains in the wealth platform, notes Macquarie. Due to higher asset growth profile, the business is valued at a premium multiple of 27 times (30 times previously), in contrast to global peers at 15 times.
Macquarie believes iFAST has strong operating leverage to higher securities turnover and trade at more attractive valuations of estimated 2027 P/E of 16 times P/E. The company is valued at $10.20 with “outperform” rating.
For Frencken, Macquarie believes it remains the least expensive proxy to the surge in semiconductor production equipment orders globally, at 21 times FY2027 P/E versus the Singapore technology sector average of 28 times. It also possesses the most upside optionality versus its other peers due to its exposure to industrial automation and automotive. The counter is valued at $3.27 with “outperform” rating.
