Avanda Investment Management, Fullerton Fund Management, J.P. Morgan Asset Management appointed Fund Managers: How High can STI reach?

MORE MARKET STIMULUS: HOW HIGH CAN STRAITS TIMES INDEX REACH?

Dear readers, in a previous post, I posed the question: what lies ahead for the Singapore stock markets following the highly anticipated listing of NTT DC REIT?

The answer, it seems, did not take long to unfold.

On 21 July 2025, the Monetary Authority of Singapore (MAS) announced the appointment of three experienced asset managers under the Equity Market Development (EMD) programme — namely, Avanda Investment Management, Fullerton Fund Management, and J.P. Morgan Asset Management. Together, they will oversee the deployment of an initial S$1.1 billion out of the S$5 billion earmarked to invigorate the local equity market.

This long-awaited move marks a concrete and strategic step forward following earlier recommendations from the Equities Market Review (EMR) committee. As this major tranche of institutional capital starts to be deployed in Singapore-listed companies, the immediate question on the minds of investors is: How high can the Straits Times Index (STI) go?

STI AT RECORD HIGHS: PRICING IN THE OPTIMISM?

To set the stage, the Straits Times Index — Singapore’s benchmark stock index — has recently surged to an all-time high of 4,200 points, fuelled by optimism surrounding reforms to bolster the local stock market.

From the strong listing performance of China Medical System Holdings to the frenzied demand for NTT DC REIT’s IPO (which was 9.8 times subscribed), investor appetite appears to be in full swing.

However, with the STI already riding high, a fair question for all investors is whether the market has already priced in most of the anticipated benefits from the upcoming stimulus. After all, valuations of many blue-chip counters have already expanded, and some components of the STI have entered overbought territory — a topic we covered previously.

Yet, momentum in financial markets often feeds on itself. More importantly, the nature of this stimulus programme is unique — it is not just a one-time injection of capital, but part of a larger, systemic plan to reposition Singapore as a leading global hub for capital markets.

THE EMD PROGRAMME: NOT JUST ANOTHER BOOST, BUT A STRATEGIC SHIFT

Let us take a closer look at the Equity Market Development (EMD) programme — what it aims to achieve and why it matters to the STI’s future trajectory.

The EMD is part of the broader set of reforms recommended by the Equities Market Review (EMR) Committee, which was formed in 2023 to rejuvenate Singapore’s public equity markets. While earlier efforts such as tax incentives and regulatory tweaks laid the groundwork, the appointment of asset managers under the EMD marks a significant acceleration.

Here’s why:

1. Scale of Investment: S$5 billion is not an insignificant sum. While the initial S$1.1 billion deployment represents a cautious first phase, even this amount can have a material impact on mid-cap and even some large-cap counters in the STI and broader SGX listings.

• Catalyst for Liquidity: One of the longstanding criticisms of the Singapore stock market is its lack of liquidity, particularly in small and mid-cap stocks. By mandating institutional participation, the EMD programme addresses this head-on. Increased liquidity could attract more international investors and bolster overall confidence in the local market.

• Talent and Capability Building: By working with respected fund managers like Avanda, Fullerton, and J.P. Morgan AM, MAS is helping to foster deeper market-making and stock-picking capabilities within Singapore’s asset management ecosystem. This has long-term positive implications for capital markets development.

• Long-Term Signal: This is not a short-term “sugar rush” stimulus — it signals that Singapore is committed to building a deep, resilient and competitive equity market for decades to come.

WHO BENEFITS — AND HOW DOES IT AFFECT STI STOCKS?

The question for retail investors now is: Which sectors and stocks within the STI will benefit most from this capital deployment?

While the MAS has not published a full list of investment criteria or target stocks, we can make informed assumptions:

1. Blue-Chip and Large-Cap Stocks

As part of risk management and due diligence, institutional asset managers are likely to channel a portion of their funds into blue-chip counters — those with strong earnings visibility, solid governance, and consistent dividend track records.

This includes STI components like:

• DBS Group Holdings
• OCBC Bank
• UOB
• Singapore Telecommunications (Singtel)
• CapitaLand Integrated Commercial Trust
• Keppel Corporation

These stocks offer the liquidity and market capitalization levels suitable for institutional accumulation, especially in the early phases of fund deployment.

2. Mid-Cap Growth Stocks

With the EMR aiming to “broaden the investible universe” in Singapore, mid-cap stocks with scalable business models and regional growth ambitions could attract significant interest. These could include:

• Real estate developers with overseas exposure (e.g. City Developments Limited)
• Infrastructure and data centre plays (e.g. Keppel DC REIT, Mapletree Industrial Trust)
• Renewable energy and green finance sectors

Mid-cap firms stand to gain from a valuation re-rating as liquidity improves and institutional interest grows.

3. Undervalued or Under-Covered Sectors

Some industries in Singapore — such as manufacturing, logistics, and even healthcare — have long suffered from under-coverage or weak analyst attention. With the MAS funds managed actively, fund managers may hunt for under-the-radar gems that can outperform over time.

This bottom-up stock picking could generate new winners, not just in the STI, but in broader SGX indices like the FTSE ST Mid Cap Index.

A CASE FOR LONGER-TERM GAINS

Sceptics might argue that deploying capital into a market already at record highs could limit the upside potential. However, this misses the broader point — the MAS-appointed fund managers are not simply chasing short-term gains, but are building strategic positions over a long-term horizon.

In fact, several forces could sustain and even accelerate STI’s momentum:

1. Dividend Yield and Value Appeal

The STI continues to offer one of the most attractive dividend yields among developed market indices — typically averaging around 4%, supported by the strong payout culture among Singapore-listed companies. For yield-seeking funds, especially in a world of falling global interest rates, this is an attractive proposition.

2. Under-Ownership by Global Investors

Compared to other global indices, Singapore remains under-owned by international institutional investors. The EMD programme can act as a beacon, attracting more foreign capital as liquidity improves and local investor participation rises.

3. Policy Backing and Structural Reform

With the Singapore government fully backing the revival of its equity markets — from regulatory agencies to statutory boards and sovereign wealth funds — investors can take comfort that this is a structural reform, not a temporary cycle.

THE STI OUTLOOK: CAN WE BREAK 4,500?

Now, to the golden question: how high can the STI go from here?

While forecasting stock market levels is always an art as much as science, here are some scenarios:

We believe that under the current trajectory, a rise towards 4,400–4,500 in the coming 6–12 months is plausible, especially if earnings from major STI constituents beat expectations and institutional momentum builds up.

RISKS AND CAUTION: DON’T BLINDLY FOLLOW THE WAVE

However, as bullish as the outlook may seem, investors should not be complacent. Several risks must be kept in mind:

1. Overvaluation in Pockets: Some STI stocks have already rallied sharply, and any negative earnings surprise could result in swift pullbacks.

• Delayed Deployment: If the appointed asset managers take a cautious approach to deploying the capital, the short-term boost may be less significant than expected.

• Global Headwinds: Singapore’s economy is still highly sensitive to global trends — U.S. interest rates, China’s recovery, and geopolitical flashpoints can all drag sentiment.

• Retail Overexuberance: As we saw with the NTT DC REIT IPO, herd mentality can lead to overbidding, followed by disappointment. A similar risk exists for investors chasing stocks on stimulus headlines without understanding fundamentals.

FINAL THOUGHTS: A STRATEGIC INFLECTION POINT FOR SINGAPORE EQUITIES

Dear readers, the appointment of the first three fund managers under the MAS Equity Market Development programme is more than just a financial injection — it marks the beginning of a renewed era for Singapore’s equity markets.

From long-term capital support to institutional engagement and retail investor confidence, multiple levers are aligning to drive sustained interest in SGX-listed stocks. And the Straits Times Index, as the primary gauge of market sentiment, stands to benefit.

But while the STI might rise to 4,500 or beyond, investors must remain grounded. Always base investment decisions on sound fundamentals, diversification, and risk management, rather than purely following market euphoria.

Let us stay watchful, hopeful, and informed.