Macquarie upgrades STI 12-month target to 6,000, giving its top picks
[SINGAPORE] Macquarie upgraded its 12-month target for Singapore’s benchmark Straits Times Index (STI) to 6,000, pointing to a “healthy cocktail” of macro economic tailwinds, rising domestic interest rates, and supportive government market initiatives.
In a Wednesday (Jul 15) note, the financial services firm said that the new target implies a 14 per cent total market return from the index level of 5,470 as at the time of the report, when factoring in the STI’s 4.1 per cent forward dividend yield.
If the index reaches 6,000, stocks would once again offer the same typical income advantage over 10-year Singapore government bonds that investors have seen over the long run—about 1.74 percentage points.
Strong macro performance bullish for index earnings
Advanced gross domestic product (GDP) estimates released by the Ministry of Trade and Industry (MTI) showed the economy expanded by 5.7 per cent year-on-year in the second quarter of 2026, Macquarie noted.
This tracks significantly ahead of MTI’s full-year growth forecast of 2 to 4 per cent.
“This is on the back of strong tech manufacturing activity and sustained services sector growth,” analysts said.
The manufacturing sector experienced a 12.2 per cent year-on-year surge, driven by higher electronics and precision engineering output, supported by strong AI-related semiconductor demand.
Rising interest rates to lift index-heavy banks
Financials account for 59 per cent of the STI.
“Where financials go, the market goes,” Macquarie said.
Macquarie has upgraded its outlook on the banking sector, projecting that domestic interest rates (SORA) bottomed in the second quarter of 2026.
Against a backdrop of a strengthening US dollar environment and Federal Reserve rate hikes, Singapore overnight rates are expected to increase by approximately 70 basis points over the next 12 months.
“Strong real GDP growth benefits banking sector earnings, likely due to deposit volume, and improved credit risk,” the analysts stated, adding that bank revenues remain highly correlated with the interest rate cycle.
“Stronger USD conditions, and US Fed rate hikes, provide a backdrop for SGD rate increases, which is supportive of index heavy-weights, the three banks,” they said.
Furthermore, the market is set to receive structural support from state-backed “value-unlocking” policies, including direct fund capital flowing into the Equity Market Development Program Funds, and initiatives aimed at encouraging dual listings and more initial public offerings.
Top large-cap and SMID stock selections
To ride this growth wave, Macquarie highlighted several high-conviction picks across the Singapore market.
Among index heavyweights, Macquarie prefers UOB and OCBC .
UOB is their preferred Singapore bank exposure, as they note that UOB trades at a 20 per cent price-to-earnings discount to DBS, and 12 per cent relative to OCBC.
“We estimate UOB has the largest exposure to floating rate SGD assets at this juncture, though all three banks should benefit from rising rates,” they said.
Jardine Matheson , Singtel , Hongkong Land , CapitaLand Integrated Commercial Trust , DFI Retail and Seatrium make up the rest of their top large-cap picks.
As for small and mid-caps, Macquarie highlights UOB Kay Hian , iFast , Frencken , UMS and Bumitama Agri as its top picks.
