Time for the CPFIS to get in on the Next 50 act

THE Singapore stock market has been anything but boring over the last 18 months. Since the announcement of the catalytic S$6.5 billion Equity Market Development Programme (EQDP) in February 2025, the Straits Times Index (STI) has gone from 3,800 points to reach 5,000 one year later, and now has crossed 5,800 early in September.

In short, the STI gained 52 per cent in the space of about 19 months. And, to the surprise of many, it has far outperformed the S&P and Nasdaq.

The STI’s five-year return of 125 per cent in SGD is more than double the MSCI World Index’s 61 per cent, beats the US, Nikkei and FTSE’s 70 per cent and has left the Hang Seng index in the dust with its 11.95 per cent.

The STI’s 10-year return in SGD, too, is over three times the HSI’s 58 per cent, even if it is more “techxiting” up north on the Hong Kong Stock Exchange with Tencent, Xiaomi and Baba being traded.

With the STI now closing in on JP Morgan’s original “bull case” of 6,000 points announced in September 2025, the target has of course just been revised to 7,000 points.

Liquidity too has expanded, with the days of anaemic S$1 billion securities daily average value (SDAV) on the SGX long gone. SDAV has doubled, having crossed S$2 billion for most of 2026 and increasing.

Likewise, SGX’s own share price in this period, and that of the only listed broker in Singapore, UOB Kay Hian, have gained handsomely from the EQDP’s shot in the arm, doubling in value (and in UOB Kay Hian’s case, more than doubling) between February 2025 and September 2026.

Turnover velocity (total value traded over market capitalisation) has increased by between 36 and 45 per cent. It is nonetheless still modest compared to developed markets where this measure is well in excess of 100 per cent. There is upside ahead.

For that to happen, free float has to increase from large Temasek-linked companies to family-owned small caps as a start. The market also needs to accept and support more emerging growth stocks (even if their profile may be more risky), and interest has to spread to a wider range of stocks beyond the STI 30.

Trickling down but how?

Deploying one’s CPF investment limits for professionally managed products into the STI exchange-traded fund (ETF) would have boosted retirement nest eggs today as the STI chalks up new all-time highs. The index also pays dividends of around 4 per cent, which correspond with the special account interest – although, of course, the latter is guaranteed without putting capital at risk.

However on closer inspection, the D in EQDP appears to just refer to DBS, which in this period has almost doubled from S$39.50 to closer to S$79. With daily turnover of S$300 million to S$400 million, our most liquid stock today weighs a hefty 29 per cent of the STI. Adding OCBC and UOB for another 29 per cent, the trio occupy 58 per cent of the STI.

We are getting more concentrated at the top, perhaps a worthy reflection of Singapore’s financial centre status – but is it healthy?

And all things considered, the first year impact of EQDP has just made big, bigger. What happened to the goal of lifting small and mid-caps (SMIDs)?

Therein lies the existential chicken and egg question for SMIDs. Without liquidity and freer float, SMIDs lack institutional or sizable family office investment, or even sustained retail investors’ confidence to join the party.

Without trading interest, which generates commissions, there is little incentive for banks and brokers to cover SMIDs (except perhaps to avail themselves of Grant for Equity Market Singapore (GEMS) Scheme grants. Mixed liquidity down the line hampers the creation of products to spread interest even if indices can be created.

Consider then, the SGX iEdge Next 50 index. It posts a dividend yield of 5.5 to 5.8 per cent, a premium over the STI’s payout. That is largely because almost 45 per cent of its components are real estate investment trusts (Reits), compared to 11 per cent of the STI.

It has lagged the STI year-to-date performance of 24 per cent by 19 points. Rising rates supported banks’ performance dominating the STI, and conversely dragged on Reits – for now.

Nonetheless, the liquidity-weighted Next 50 index has fared almost twice better, with overweights on well-performing stocks such as iFast and UMS. The addition of AEM, whose stock price this year has quadrupled in this June’s rebalance, propelled it straight into the top five, but the index inclusion had limited market impact as there were no index funds tracking it yet.

The newly launched CGS Fullgoal Next 50 Active ETF thus presents an interesting proposition to catalyse liquidity in this segment. Its auspicious S$28.8 million initial raise heralds a comfortable manageable start.

If it grows, it may help further revalue stocks such as ComfortDelgro, Sheng Siong and Raffles Medical by making them accessible in a bundle buffeted by Reit dividends. It is also structured with flexibility for tactical “SGX Alpha” allocation of up to 20 per cent, with 80 per cent in core index tracking.

In practice, the ETF could actively rebalance a basket of higher yielding Reits, a smattering of growth stocks emerging through the Value Unlock initiatives and erm… DBS.

This is surely a less risky proposition than investors who can purchase CPF Investment Scheme (CPFIS) eligible small-cap stocks by themselves.

If so, the Next Act is perhaps enabling new local ETFs to be auto-included into the CPFIS, given their enabling role for EQDP goals.

The writer is chairman of Shan De Advisors. He retired in 2021 from SGX, where he was a senior managing director.