Singapore Bank Rally Loses Steam as Investors Eye Value Unlocks and Mid-Cap Growth

Concentrated Rally Raises Rotation Risk

Singapore's Straits Times Index hit 5,581.37 on August 5, but the rally masks a striking concentration: local banks and Singapore Exchange delivered 95 percent of the index's year-to-date gains, according to DBS Group Research. The remaining 26 component stocks contributed just 50 index points over the same period.

Since the US-Iran conflict began, the imbalance has grown more acute. Banks and SGX accounted for more than 100 percent of index gains, while the other 26 stocks posted a net negative contribution of 184 points. That lopsided performance has left the STI vulnerable to a correction if bank momentum stalls, analysts Yeo Kee Yan and Foo Fang Boon wrote in a strategy note released August 5.

The three major Singapore banks now trade at price-to-book multiples that DBS describes as having "gone ballistic," while dividend yields have compressed. With all three banks going ex-dividend in August, the near-term support that quarterly payouts provided is temporarily off the table. DBS expects a consolidation phase for bank stocks as valuation multiples remain elevated and cash distributions pause.

Oil, Rates, and the Shift to Earnings

Two macro shifts are opening the door for broader market participation. Oil prices have declined from recent peaks, easing pressure on inflation-sensitive sectors. Meanwhile, the US Federal Reserve held rates steady at 3.75 percent in July, stabilising interest-rate expectations after months of higher-for-longer rhetoric.

DBS sees earnings re-emerging as the primary driver of stock performance in the second half of 2026. Investors are rotating toward sectors with stronger earnings momentum and positive guidance, particularly those previously weighed down by rate uncertainty. Real estate investment trusts and property developers are among the sectors expected to benefit from a valuation catch-up.

Industrial REITs are a focal point. DBS highlights CapitaLand Ascendas REIT as a preferred pick, noting that Singapore REITs should remain well-positioned for valuation recovery if markets pare back expectations of further rate hikes. That would support multiple expansion and renewed investor interest. High-growth plays including Centurion Accommodation REIT and Parkway Life REIT also feature in the brokerage's recommendations.

Value Unlocking and EQDP Deployment

DBS flags an "opportune time" to revisit stocks with intact value-unlocking narratives. UOL Group, City Developments, Jardine Matheson, and Singtel are among the names the firm identifies as offering potential upside as investors look beyond the bank trade.

In the small-to-mid-cap space, the Equities Market Development Programme continues to deploy capital. Around SGD 4 billion has been allocated to date, with a further SGD 2.6 billion pending following the Budget 2026 top-up of SGD 1.5 billion. DBS expects these pending deployments to support broader market constituents and lift participation rates.

The brokerage's SMID picks include China Aviation Oil, UMS, AEM, Keppel REIT, Centurion Accommodation REIT, UOB Kay Hian, First Resources, and YZJ Maritime. It also names Yangzijiang Shipbuilding, ST Engineering, and SATS as key picks across the broader market.

Tech Volatility and AI Scrutiny

Technology stocks remain volatile as investors scrutinise artificial intelligence monetisation. DBS notes that greater caution around AI valuations is encouraging investors to explore stocks outside sectors that have captured outsized attention year to date. While the firm remains positive on AI over the long term, it argues that other themes, including value unlocking and EQDP beneficiaries, offer more immediate catalysts.

The shift away from banks and tech concentration suggests that Singapore's equity market is entering a phase where stock selection matters more than index momentum. With dividend support fading and valuation multiples stretched in the market's largest constituents, the third quarter is shaping up as a test of whether breadth can replace concentration as the driver of returns.