Commentary: What STI’s record run doesn’t say about the Singapore stock market

Commentary: What STI’s record run doesn’t say about the Singapore stock market When Singapore is more than just its financial sector and banks, the Straits Times Index shows an incomplete picture, says former financial journalist Ven Sreenivasan. SINGAPORE: The Straits Times Index (STI) has been on a tear this year, closing at new highs almost every other week. But raw index numbers only tell part of the story. The ST index is the flagship indicator of the Singapore bourse, reflecting the performance of the 30 largest companies listed on the Singapore Exchange (SGX). It broadly tells us how the Singapore market is performing. According to SGX data as of Monday (Aug 17), the STI generated a 24 per cent total return on a year-to-date basis. It outperformed the broader Asia-Pacific market (19.4 per cent) and global equities (13.8 per cent) over the same period. On the face of it, that suggests an exceptionally strong Singapore market. POWERED MAINLY BY THREE BANKS But the STI is not a simple average of how its 30 companies are performing. About 57 per cent of the benchmark index's weight is carried by the three local banks: DBS, United Overseas Bank and OCBC. So movements in their share prices have a greater effect on whether the STI rises or falls. The level of concentration is notable when compared to the world’s most closely watched index, the S&P 500, where the top three companies account for barely 20 per cent of the index’s weight. The three local banks have been strong performers. DBS does the heaviest lifting, with its market capitalisation rising past the S$200 billion mark as its share price surged by over a third this year. OCBC has seen its share price surge nearly 60 per cent, while UOB is up about 17 per cent. Beyond the banks, Singapore Exchange, Singapore Technologies Engineering, Wilmar International and Singapore Airlines helped broaden the advance. The strength of the banks’ performance is not really surprising, given their strong earnings and Singapore’s appeal as a safe harbour for funds. In the wake of the recent crisis in the Middle East and elsewhere, there has been a huge inflow of funds. In all fairness, the strength of the ST index, and the banks in particular, reflects Singapore’s unique circumstance - and vigour - as a key global financial centre. SINGAPORE IS MORE THAN BANKS AND FINANCE But Singapore is more than just the financial sector and banks. Its listed market is filled with strong property players, tech companies, manufacturers, world-beating biotech enterprises and more that are far less visible on the STI. Bringing more attention and investment to this broader market has, in fact, been a key aim of Singapore's efforts to revive its equities market. The Monetary Authority of Singapore (MAS) launched its Equity Market Development Programme, starting with S$5 billion in early 2025 and expanding it to S$6.5 billion this year, to boost investor participation in the broader market. The twin aims were to revive a moribund market and attract more listings to the SGX. The effort has had some success, but the “concentration problem” means the ST index continues to give investors an incomplete picture of the market. A CONCENTRATION PROBLEM The STI’s heavy concentration in banks shapes where investment money flows and carries additional risks. Combined assets under management (AUM) of STI exchange-traded funds (ETFs) exceeded S$5 billion in June, extending net inflows for a 15th straight month. This means investors have put that much money in funds designed to mirror the STI. Such benchmarked funds broadly have to invest according to the composition of the index it is tracking. The three component banks naturally receive a large share of such investments. The high dependency on banks also makes it vulnerable to factors that weigh on banks. For example, significant changes to interest rates and AUM flows could hit bank earnings and share prices, pulling down the index even if companies in other sectors remain healthy. A BETTER SCOREBOARD For the market to truly reflect its value, it needs depth, not just surface momentum. Given the structure of the ST index as it currently exists, one could question whether the market has enough depth to sustain its resurgence. It is not a good sign that after a promising start, the IPO market has stuttered and stumbled of late. If liquidity is to truly spread beyond the usual blue chips, and the banks in particular, other segments of the market have to see real representation on the benchmark market index. There has to be real depth represented on the benchmark index. It may be time for the architects of the ST index to consider whether the current weightings are truly reflective of the health and performance of the broader Singapore bourse. Ven Sreenivasan is a former editor and journalist who has covered financial markets, economic and corporate news and aviation for more than 30 years.