WILL SINGAPORE STOCK MARKETS NEXT CORRECT TO MORE PRACTICAL LEVEL?

Dear readers, after months of stellar gains and celebratory headlines, the Singapore stock market may now be at a pivotal juncture. The Straits Times Index (STI) has recently surged past the symbolic 4,000 mark—an achievement not seen in decades. But the question on the minds of many investors today is: Can this rally be sustained, or are we due for a healthy correction to a more realistic and practical level?

The sudden 7% dive in Singapore Airlines (SIA) stock on 29 July 2025 may be a sign of what’s to come. Following the company’s earnings release for the first quarter of its 2025/2026 fiscal year, investors were spooked by a 59% year-on-year plunge in net profit. For the three months ending June 2025, SIA reported net earnings of $186 million, a sharp fall from the $452 million booked in the same period last year. While SIA’s passenger volumes and revenue were still resilient, higher operating costs and normalizing ticket prices clearly took a toll.

This disappointing result has sparked renewed concern over the health of Singapore’s corporate earnings, particularly with DBS, OCBC, and UOB—the trio of Singapore’s largest banks and key pillars of the STI—set to report their second-quarter results in the weeks ahead. Could SIA’s shock decline be a precursor to a broader earnings miss across sectors?

Is the STI Rally Driven by Fundamentals or FOMO?

There’s no denying that the STI has delivered a phenomenal year-to-date performance, supported by strong institutional participation and revived retail investor interest. As of late July 2025, the STI climbed from around 3,787 at the beginning of the year to over 4,240—a gain of more than 11% in just seven months. That’s impressive by any standard.

This performance has been bolstered in part by the efforts of the Equity Market Development (EMD) Group, a multi-agency initiative involving MAS, SGX Group, and industry players seeking to rejuvenate the Singapore equity market through increased listings, enhanced investor engagement, and global positioning.

While these reforms are structurally beneficial, the pace of the STI’s rise has raised eyebrows. Some analysts and market watchers now caution that the rally may have outpaced near-term economic and earnings realities. As optimism ran high, a string of high-profile IPOs and strong dividend-paying blue chips helped push valuations higher.

But are we entering a zone of irrational exuberance?

Why SIA’s Profit Decline Could Be a Red Flag

Let’s begin with SIA—a national icon and a bellwether for both tourism and the wider economy.

📉 Q1 FY2025/2026 Financial Snapshot:

• Net Profit: $186 million (vs. $452 million last year, -59%)
• Revenue: $4.3 billion (vs. $4.5 billion last year, -4%)
• Load Factor: Stable, but yields have normalised
• Challenges: Rising fuel costs, increased competition, lower ticket prices

SIA’s profit decline reflects a return to pre-pandemic business conditions. With revenge travel fading, cost pressures rising, and freight volumes plateauing, the airline is no longer enjoying the extraordinary earnings it posted over the past two years. This has rattled investors.

More importantly, SIA’s decline isn’t an isolated case. It may well reflect the reality for many other Singapore-listed companies—especially those whose valuations were inflated by post-COVID reopening narratives and investor hype.

Upcoming Bank Earnings: The Litmus Test for STI

Perhaps the most anticipated market-moving events in August will be the Q2 2025 earnings releases of DBS, OCBC, and UOB. As the three biggest constituents of the STI, the performance of these banks will likely dictate the index’s next move.

💼 What Analysts Are Expecting:

• Lower Net Interest Margins (NIMs) due to declining global and local interest rates
• Flat or lower loan growth, particularly in Singapore and Hong Kong
• Weaker trading income amid slower markets
• Softer fee-based income, especially wealth management

A senior banking analyst from Maybank Securities was recently quoted as saying:

“The golden age of peak interest margins is behind us. We expect banks to report a sequential dip in profits. The market may not have fully priced that in.”

If earnings do indeed underwhelm, investors could rotate out of banking stocks, dragging the STI lower in the process.

NTT DC REIT: From Hype to Reality

The case of NTT Global Data Centers REIT—the most talked-about IPO of 2025—adds another layer to this discussion. Launched with great fanfare in early July and massively oversubscribed (9.8 times for the public tranche), the REIT was viewed as a litmus test for investor appetite.

Yet, just weeks after its debut, NTT DC REIT has fallen 5% below its IPO price, trading at $0.95. This performance suggests that even highly anticipated listings are not immune to market fatigue and valuation scepticism.

Here’s what might have contributed to the underperformance:

• Rising yields on risk-free instruments like T-bills and fixed deposits earlier this year
• Profit-taking after listing
• Concerns about overvaluation and distribution sustainability
• Lower gearing and yield compared to more established peers

This sobering result is a reminder that sentiment can turn quickly—and that not all “hot” IPOs translate into long-term winners.

Are Valuations Getting Ahead of Fundamentals?

With the STI now trading above 4,200, some investors have started asking the tough questions:

• Are earnings justifying current valuations?
• Are forward P/E multiples stretched?
• Have rising stock prices been driven more by liquidity and hope than by growth and profitability?

Let’s consider some numbers:

The declining risk-free rate has certainly made equities more attractive from a yield perspective, but rising valuations mean that even minor earnings disappointments could spark pullbacks.

A Correction May Not Be Bad News

Investors should not fear a correction. In fact, a healthy market correction could be beneficial for long-term market integrity and investor discipline.

Here’s why:

✅ It Resets Valuations

Overheated markets can lead to complacency. A pullback allows valuations to normalise and reduces the risk of a more severe crash later.

✅ It Offers Buying Opportunities

High-quality stocks and REITs trading at inflated prices today could become attractive again at lower levels.

✅ It Strengthens Market Credibility

Speculation, if unchecked, can damage trust in the market. A correction signals that fundamentals—not hype—are still in charge.

✅ It Encourages Long-Term Thinking

Short-term speculators may exit, while serious long-term investors re-enter, leading to a more stable investor base.

Sectors Most Vulnerable to Correction

Should the STI correct, here are some sectors and stocks likely to feel the pressure:

❌ Aviation & Tourism

SIA’s recent result shows that the post-pandemic boom is over. Other tourism-linked stocks may see similar normalisation.

❌ Banks

If net interest income drops sharply, and wealth management fees remain subdued, banks could see double-digit stock corrections.

❌ REITs with High Gearing

In a falling rate environment, some REITs may benefit. But those with high debt or weak sponsors could underperform.

❌ Cyclicals & Commodities

Global economic uncertainties (including China’s slow recovery) may weigh on earnings for export-driven companies.

Sectors That Could Withstand Correction

However, not all is doom and gloom. Some sectors may stay resilient even if the STI corrects:

✅ Healthcare & Consumer Staples

Defensive sectors like healthcare and essentials often outperform during corrections.

✅ Low-Gearing REITs

REITs with strong sponsors, low gearing, and essential infrastructure exposure (e.g., Keppel DC REIT, Parkway Life REIT) could remain attractive.

✅ Green Economy & Digital Infra

Long-term themes like AI data centres, renewables, and digital infrastructure remain intact despite short-term market pullbacks.

Final Thoughts: Prepare, Don’t Panic

The Singapore stock market has done incredibly well in the past year, powered by investor optimism, institutional support, and a genuine desire to make the SGX vibrant again. But no rally lasts forever without pauses.

Whether we call it a correction, a consolidation, or a cooling-off, a return to more practical levels should be viewed as part of a healthy market cycle—not a crisis. What matters now is how investors prepare.

What you can do:

• Review your portfolio and reduce exposure to overvalued or speculative stocks.
• Reallocate to sectors with long-term potential and stronger fundamentals.
• Keep cash or low-risk instruments like T-bills ready for deployment.
• Don’t chase hype; chase value.

Conclusion: Are We at the Peak or Just a Pause?There are growing signs that the Singapore stock market’s incredible run might take a breather. Between SIA’s profit disappointment, upcoming bank results, and subdued IPO performances like NTT DC REIT, the exuberance of the past months could make way for reflection and recalibration.

Yet, this is not a time for fear—but for focus. A more realistic STI level may not signal an end to the bull market, but a transition to a more mature and value-driven one.

Let’s stay invested, stay alert, and stay wise.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult your financial adviser before making investment decisions.