The Straits Times Index has surged more than 23% in 2026, but DBS, OCBC and UOB now account for close to 60% of the index. For investors using an STI tracker for diversification, that concentration deserves a closer look.

Why should investors care?

The Straits Times Index is having an exceptional year.

It has gained more than 23% in 2026, reached an intraday record of 5,774.21 points on August 11, and is on track for its fifth consecutive quarter of gains — its longest winning streak in a decade.

JPMorgan has also raised its bull-case target for the STI to 7,000 points.

But for investors holding the index through an STI-tracking fund or ETF, there is a more important question than whether the rally can continue:

What are you actually buying when you buy the STI today?

The answer has changed significantly.

DBS, OCBC and UOB — Singapore’s three largest domestic banks — now account for close to 60% of the index by market capitalisation, up from 38% in July 2020.

That means an investor buying the STI for broad exposure to Singapore’s economy is increasingly making a concentrated bet on three financial institutions.

That doesn’t make the STI a bad investment.

It does, however, mean the diversification provided by the index is not as broad as its 30-stock structure might suggest.

The Singapore market is rallying. But the banks are doing much of the heavy lifting

The latest results from Singapore’s three major banks illustrate why the STI has been so strong — and why their growing weight matters.

All three reported results in the same week.

But they were not equally strong.

DBS: wealth management is becoming increasingly important

DBS Group Holdings reported record second-quarter net profit of S$3.08 billion, up 9% year on year and 5% quarter on quarter.

Total income exceeded S$6 billion for the first time in a quarter, rising 6%.

For the first half, net profit reached a record S$6.01 billion, up 5%.

Return on equity was 17.5%, while the cost-income ratio was 39%. DBS’s wealth-management assets under management also crossed S$500 billion.

The important point for STI investors is not simply that DBS made more money.

It is where the growth is coming from.

Record wealth-management fees and treasury customer sales helped offset pressure from lower interest rates.

That matters because falling interest rates are normally a problem for banks: lower rates can compress the spread between what banks earn on loans and what they pay for funding.

DBS is increasingly relying on businesses such as wealth management and fee income to diversify that earnings engine.

OCBC: an even stronger earnings showing

Oversea-Chinese Banking Corporation produced an even bigger headline surprise.

First-half net profit rose 13% to a record S$4.19 billion, while total income increased 11% to S$8.00 billion.

Non-interest income jumped 36% to a record level, driven by fees, trading and insurance.

Annualised ROE improved to 13.7%, while the interim dividend increased 15% to 47 cents a share.

Second-quarter net profit rose 22% to S$2.22 billion — the first time OCBC’s quarterly profit exceeded S$2 billion.

Again, the investment takeaway goes beyond the headline number.

OCBC was able to offset weaker net interest income with much stronger non-interest income.

For investors, that is increasingly important as the rate environment becomes less supportive of traditional lending margins.

UOB: the outlier investors shouldn’t ignore

United Overseas Bank also grew earnings.

Second-quarter net profit rose 10% year on year to S$1.478 billion, bringing first-half net profit to S$2.915 billion, up 3%.

But the quality of that growth was less reassuring.

UOB’s net interest margin fell 8 basis points to 1.74%, below its previously guided range of 1.75% to 1.80%.

The bank also reduced its full-year fee-income growth guidance from high-single-digit growth to low-single-digit growth.

At the same time, new non-performing assets associated partly with Greater China real-estate exposure rose to S$902 million from S$321 million in the previous quarter, while the NPL ratio increased to 1.6%.

The market noticed.

DBS and OCBC shares reached record highs around their results, while UOB shares fell by close to 5%.

That divergence is arguably more important than the headline results themselves.

It shows that investors should not think of the three banks as one homogeneous trade.

The real STI risk: concentration, not simply banks

It is easy to look at the STI’s 30 constituents and assume that owning an STI ETF means owning a diversified slice of Singapore.

But market-capitalisation weighting changes the picture.

The largest companies carry disproportionately large weights. As DBS, OCBC and UOB have risen in value, their influence on the index has increased as well.

Today, the three banks together account for close to 60% of the STI.

That creates a particular type of concentration risk.

An investor does not need all three banks to suffer simultaneously for the STI to come under pressure. A meaningful slowdown in the earnings or valuation of one or two of the largest constituents can have an outsized effect on the benchmark.

And there are several factors that affect all three banks:

• interest rates;
• credit conditions;
• Singapore and regional economic growth;
• wealth flows;
• property markets; and
• investor appetite for financial stocks.

The three banks are not identical, but they are exposed to many of the same broad forces.

The STI therefore offers diversification across companies, but considerably less diversification across economic drivers than its 30-stock count suggests.

That is the distinction investors need to understand.

And the three-bank bet is becoming more differentiated

There is another layer to the story.

The concentration risk is real, but the three banks are increasingly producing different investment outcomes.

DBS is demonstrating considerable strength in wealth management and fee-generating businesses.

OCBC is benefiting from particularly strong non-interest income, including insurance-related activities.

UOB is facing more visible pressure on net interest margins and fee growth, while its Greater China exposure is becoming more relevant to the credit story.

That means “buying the Singapore banks” is no longer a sufficiently precise investment thesis.

The market’s reaction to the latest results makes that clear.

DBS and OCBC were rewarded.

UOB was punished.

An investor in an STI ETF gets all three — regardless of which bank has the strongest outlook.

That is one of the hidden consequences of passive investing.

The valuation problem: Singapore isn’t as cheap as it used to be

There is another reason investors should pay attention to the STI’s composition.

The index now trades at more than 16 times forward earnings, more than two standard deviations above its 10-year average and at its richest valuation since the Global Financial Crisis, according to the research cited in the Agent 3 source material.

That changes the investment equation.

For years, one of the strongest arguments for Singapore equities was valuation.

The STI was often viewed as a relatively inexpensive developed-market benchmark, supported by attractive dividend yields and large, profitable companies.

That valuation cushion is now much thinner.

This matters because a high valuation leaves less room for disappointment.

If bank earnings continue to surprise positively, the STI can certainly justify a higher valuation.

But if earnings growth slows while investors simultaneously become less willing to pay premium multiples for banks, the index could face pressure from both sides of the equation.

That is the risk behind the rally that a simple index chart does not reveal.

The bull case: this isn’t necessarily a bubble

It would be wrong to conclude that the STI’s rally is purely a valuation-driven phenomenon.

Singapore’s economic backdrop has strengthened materially.

The Ministry of Trade and Industry raised its 2026 GDP growth forecast to 4.5%–5.5%, from 2.0%–4.0%.

Singapore’s economy grew 5.9% year on year in the second quarter, while first-half growth reached 6.1%.

MTI attributed the stronger outlook partly to stronger-than-expected global AI-related capital expenditure, which is supporting manufacturing and trade activity in Singapore.

That is important for the banks.

A stronger economy can support loan demand, corporate activity, wealth creation and transaction volumes.

It also helps explain why JPMorgan remains bullish.

The bank’s research points to a combination of strong growth, contained inflation, a stronger Singapore dollar, attractive dividend yields and potential inflows associated with Singapore’s Equity Market Development Programme.

JPMorgan raised its bull-case STI target to 7,000 points.

So the bull case isn’t simply:

“The market has gone up, therefore it will keep going up.”

There is a genuine economic argument underneath the rally.

But the institutional view isn’t unanimous

The most interesting counterpoint comes from Fidelity International.

Fidelity has been reducing its Singapore exposure, citing share-price gains that have outpaced earnings growth.

That doesn’t prove the STI is overvalued.

Nor does JPMorgan’s bullish target prove that it is undervalued.

But the disagreement is useful.

It highlights the central question facing investors today:

Has Singapore’s earnings outlook improved enough to justify the market’s much higher valuation?

That is a more important question than whether the STI has reached another record.

The biggest mistake an STI investor could make now

The wrong conclusion from this analysis would be:

“The STI is too concentrated, so I should sell my STI ETF.”

That does not necessarily follow.

An STI ETF still gives investors exposure to some of Singapore’s largest and most profitable companies.

The issue is portfolio construction.

If an investor already owns DBS, OCBC and UOB individually, buying an STI ETF adds less diversification than the investor may think.

For example, someone holding all three banks directly and then adding a large STI position is effectively increasing exposure to the same three companies — rather than adding an entirely new layer of diversification.

Conversely, an investor who owns an STI ETF as their primary Singapore-equity exposure may be perfectly comfortable with that concentration.

The key is simply to recognise it.

Passive investing does not eliminate concentration risk. It can hide it.

What investors should watch next

1. The banks’ margins

As interest rates ease, net interest margins will remain a key earnings variable.

UOB’s latest results provide an early warning of what happens when margins come under pressure.

Investors should watch whether DBS and OCBC can maintain their earnings momentum as well.

2. Wealth-management growth

Wealth management has become an increasingly important earnings engine for Singapore’s banks.

If fee income continues growing strongly, it could offset some of the pressure from lower lending margins.

If wealth flows slow, the earnings resilience could look very different.

3. UOB’s credit quality

UOB’s Greater China exposure deserves particular attention.

The increase in new non-performing assets does not automatically mean a major credit problem is developing, but it is a metric investors should monitor closely.

4. STI valuation

A market trading at a historically elevated forward multiple becomes increasingly dependent on earnings delivery.

If earnings exceed expectations, the premium may be justified.

If they disappoint, valuation becomes a vulnerability.

5. Whether the index concentration continues

The next question is not merely whether DBS, OCBC and UOB remain the largest STI constituents.

It is whether their combined weight continues to increase.

If other sectors begin outperforming, the index could naturally become more diversified again.

The investment verdict

WATCH — but don’t confuse concentration with a sell signal.

The STI’s rally has genuine fundamental support.

Singapore’s economic growth has strengthened, DBS and OCBC are producing record earnings, and UOB’s weaker performance is a useful reminder that the banking sector itself is not monolithic.

But the composition of the index has changed.

With DBS, OCBC and UOB accounting for close to 60% of the STI, an investor buying an STI tracker is making a much larger bet on Singapore’s banking sector than the index’s 30 constituents might suggest.

That does not mean STI investors should abandon passive exposure.

It means they should understand what they own.

For investors who already have substantial direct exposure to DBS, OCBC or UOB, the concentration deserves particular attention. For investors without individual bank holdings, the STI may still provide an efficient way to participate in Singapore’s economic and corporate growth.

The bigger question is whether the current valuation adequately compensates investors for taking that concentrated exposure.

The STI is no longer simply a bet on Singapore Inc. It is increasingly a bet on whether three banks can keep delivering enough earnings growth to justify their growing influence on the benchmark.

That is the real investment story behind the record high.

FAQ

Why has the Straits Times Index performed so well in 2026?

The STI has gained more than 23% in 2026, supported by strong results from Singapore’s major banks and a stronger economic backdrop. MTI raised its 2026 GDP growth forecast to 4.5%–5.5%, while Singapore recorded 5.9% year-on-year GDP growth in the second quarter.

How concentrated is the STI in bank stocks?

DBS, OCBC and UOB together account for close to 60% of the STI by market capitalisation, compared with 38% in July 2020.

Did DBS, OCBC and UOB perform equally well?

No. DBS and OCBC reported record profits and their shares reached record highs around their results. UOB also increased profit, but weaker net interest margins, reduced fee-income guidance and higher new non-performing assets weighed on investor sentiment.

What is JPMorgan’s target for the STI?

JPMorgan raised its bull-case target for the STI to 7,000 points. Its earlier base-case target was 6,000 points.

Is Singapore’s stock market still cheap?

Not by its own recent historical standards. The STI is trading at more than 16 times forward earnings, more than two standard deviations above its 10-year average and at its highest valuation since the Global Financial Crisis, according to the cited research.

Does an STI ETF still provide diversification?

Yes, but less than its 30-stock structure might imply. Because DBS, OCBC and UOB together represent close to 60% of the index, the benchmark is increasingly concentrated in three large financial institutions.