Investors with money parked in Singapore equities are a happy bunch this year.
The Straits Times Index (SGX: ^STI), or STI, has outperformed many Asia-Pacific markets in the past two years and gained over 16% as of 3 December 2024.
This puts the index at a 17-year high even as it touches the 3,822 level, and is just shy of its all-time high of 3,906 achieved back in October 2007.
Amid the bullish mood, investors may wonder if the index is poised to surpass its all-time high next year.
Let’s break the index down into its major components to assess if there is a high probability of this happening.
Banks are leading the way
First off, investors should note that more than half of the STI is comprised of the three local banks, namely DBS Group (SGX: D05), OCBC Ltd (SGX: O39), and United Overseas Bank (SGX: U11), or UOB.
DBS, being Singapore’s largest bank, takes up nearly a quarter of the index’s weight while OCBC and UOB had weights of 16.3% and 12.6%, respectively.
Together, the trio of banks occupied 53% of the STI’s value as of 29 November 2024.
For this year, these banks are responsible for powering the index to its 17-year high.
All three banks have hit their all-time highs amid a flurry of strong financial results brought about by surging interest rates.
The question is whether these banks can continue to do well in 2025 to help the index climb further.
For DBS, CEO Piyush Gupta thinks that net interest income (NII) will hover around 2024 levels as a decline in net interest margins will be offset by higher loan growth.
Non-interest income, however, should see high-single-digit year-on-year growth.
UOB’s CEO, Wee Ee Cheong, projects high single-digit loan growth and double-digit fee income growth for the lender next year.
OCBC did not provide any guidance for 2025 but back in May this year, CEO Helen Wong announced that the bank will invest HK$1.5 billion over the next three years to modernise its technology platforms, channels, and products.
There is an overall positive tone coming from the three banks as they believe that interest rates should hover around current levels or be slightly lower.
The US Federal Reserve is likely to go through with its third consecutive rate cut for 2024 when it convenes on 18 December.
However, experts believe that there will be a slower pace of rate cuts in 2025 as inflation has proven sticky and with the new President-Elect Donald Trump’s policies being inflationary, too.
Singtel introduces its value realisation dividend
Singtel (SGX: Z74) is the next stock after UOB in terms of weight and contributes 6.6% to the index’s value.
The telco has done well since it introduced its strategic reset back in 2021.
For its recent first half of fiscal 2025 (1H FY2025) earnings, revenue stayed flat year on year but operating profit climbed 27% year on year to S$738 million, led by its Optus and NCS divisions.
The group’s underlying net profit improved by 6% year on year to S$1.2 billion.
The good news is that the interim dividend rose to S$0.07, higher than the prior year’s S$0.052, and comprises a value realisation dividend (VRD) of S$0.014 along with a core dividend of S$0.056.
Since Singtel’s reset, the telco has raised its annual dividends without fail since FY2021.
The new VRD is funded from excess capital churned out by its asset recycling programme and will range from S$0.03 to S$0.06 per year.
With new targets for capital recycling along with improvements in core underlying net profit, Singtel looks well-positioned to continue growing in 2025 and beyond.
Robust REIT candidates
Let’s not forget that the REITs also show promise despite a tepid 2024 that saw the sector get hit by higher finance costs and inflationary pressures.
CapitaLand Integrated Commercial Trust (SGX: C38U), or CICT, takes up close to 3% of the index and is the largest REIT listed on the stock exchange.
CapitaLand Ascendas REIT (SGX: A17U), or CLAR, comes in close with a 2.7% weight.
CICT posted a healthy performance for the first nine months of 2024 as gross revenue rose 2% year on year and net property income increased by 5.4% year on year.
CLAR just announced its first sale and leaseback transaction with DHL USA for S$150.3 million which is yield-accretive and will bolster its US portfolio.
Other promising companies
Aside from the six stocks mentioned above, other promising candidates can benefit from the STI.
Keppel Ltd (SGX: BN4) occupies a 2.65% weight within the index and the asset manager has done well for 9M 2024.
Although net profit was comparable year on year, recurring income grew 14% year on year for 9M 2024 as the group continued growing its funds under management.
Singapore Exchange Limited (SGX: S68), or SGX, takes up 3% of the index’s value and the bourse operator reported an encouraging result for its fiscal 2024 ending 30 June 2024.
Revenue inched up 3.1% year on year to S$1.2 billion while net profit (excluding exceptional items) increased by 4.5% year on year to S$525.9 million.
The exchange also upped its quarterly dividend from S$0.085 to S$0.09.
Looking ahead, management aims to grow the group’s revenue by 6% to 8% per annum in the medium term.
Get Smart: Prepare for lift-off!
Based on the analysis above, there is a reasonably high chance for the STI to exceed its all-time high next year.
With the banks doing well along with Singtel and Keppel, investors can look forward to better days in 2025 and for the index to make history.
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Disclosure: Royston Yang owns shares of DBS Group and Singapore Exchange Limited.
