The future of Singapore's stock market over the next 15 years hinges on just 10 companies.
This isn't an exaggeration – it's a statistical fact.
The Straits Times Index recently surpassed 4,400.
Following this milestone, DBS Group's research predicted the STI could soar to 10,000 by 2040.
The uncomfortable reality is that this target is heavily dependent on a specific group of stocks.
However, the question isn't whether the STI will reach 10,000.
Instead, we should ask if the underlying companies can generate enough value to achieve this goal over the next 15 years.
Understanding the 10,000 Target
Let’s break down the numbers.
If the STI ends 2025 at around 4,400, it would need an annual return of about 5.6% to hit 10,000 by 2040.
This is feasible.
DBS’s research shows the index’s average total returns (including dividends) over rolling 15-year periods since 2000 have ranged between 6% and 13.3%.
The crucial question is: can the 30 companies within the STI drive it to 10,000 by 2040?
Just 10 of these companies control 77% of its weight, indicating the pivotal role of these key players.
Singapore Banks: Key Players in the STI
Starting with Singapore’s banks, which form half of the STI.
DBS Group, Oversea-Chinese Banking Corporation or OCBC, and United Overseas Bank or UOB collectively held over 50% of the index at the end of September.
These three banks significantly influence the index's performance.
The good news is that they have delivered strong results.
Over the past decade, their book values have grown between 5.7% and 6.1% annually.
Including an average dividend yield of about 4.7%, their annual returns exceed 10%.
However, today's valuations present challenges.
All three banks are trading at premiums in terms of their price-to-book ratios.
DBS, Singapore’s largest bank, is valued at 2.2 times its book value.
High stock valuations can dampen future returns if multiples decline.
Additionally, there’s the headwind of interest rates.
OCBC and UOB have already faced pressure, with net interest incomes and profits declining in the first half of 2025, leading to lower interim dividends.
DBS has maintained its quarterly dividend and has even hinted at a potential 10% increase in its final payout for this year.
While DBS remains resilient, its high book value leaves little margin for error.
In summary, banks can contribute to the STI’s path to 10,000, but they can't carry the burden alone.
Singtel: Grappling with Challenges
If banks can't do it alone, who else might help?
One contender is Singapore Telecommunications or Singtel, which accounts for 7.5% of the index.
Recently, Singtel showed promise with its Singtel28 plan, unveiled in May 2024, set to unlock S$6 billion from asset recycling for growth and special dividends.
The market responded positively, pushing shares up 70%.
Singtel’s earnings per share have grown 4.8% annually over the past decade.
Including a 4.6% average dividend yield, it has achieved returns above 9%, comfortably meeting the required growth.
However, September 2025 brought setbacks.
Optus, Singtel’s Australian subsidiary, experienced two major network outages, attracting regulatory scrutiny.
Optus represents roughly half of Singtel’s revenue.
Potential penalties and infrastructure investments could divert capital from the Singtel28 plan, and the reputational damage remains uncertain.
Until these issues are resolved, Singtel's role in the STI’s journey to 10,000 is uncertain.
REITs: Poised for Gains
Lower interest rates, which adversely affect banks, benefit REITs.
Singapore's real estate investment trusts (REITs) stand to gain from declining rates.
CapitaLand Integrated Commercial Trust or CICT, and CapitaLand Ascendas REIT or CLAR, together contribute around 6% of the index.
Historically, both have offered distribution per unit (DPU) yields of 4.5% to 6%.
However, growth has been limited.
The pandemic affected both REITs, particularly CICT, with its retail and office assets.
Rising rates then stalled their recovery.
Despite these challenges, CICT has delivered 6.4% annual DPU growth since 2020, while CLAR managed 1.6%.
Falling interest rates can lower financing costs, enhancing distributions.
With the right conditions, REITs could meaningfully contribute to the STI's growth.
SGX and STE: Committed to Growth
While REITs await interest rate relief, two companies are making concrete promises.
Singapore Exchange or SGX and Singapore Technologies Engineering or STE together account for 6.6% of the index.
Their historical dividend yields — 3.5% for SGX and 4.1% for STE — are moderate.
However, both companies have announced dividend growth plans.
SGX aims to increase its annual dividend from S$0.375 in FY2025 to S$0.525 by FY2028, a 40% rise in three years.
STE is promising nearly a 6% dividend increase for 2025, followed by further incremental growth tied to profit gains.
These targets indicate a strong commitment to growth.
Such commitments, if fulfilled, could significantly contribute to the STI's goal of reaching 10,000.