Why Singapore Small- and Mid-Caps May Be Ready for a Second Look

For much of 2026, The Straits Times Index kept reaching new highs, but the gains were heavily concentrated in the three local banks and SGX.

DBS Research calculates that these four financial stocks contributed more than 95% of the STI’s year-to-date rise, while many companies outside the index quietly corrected.

Against this backdrop, DBS believes the next phase of the market could involve a rotation into small- and mid-cap companies, or SMCs.

A major catalyst could be the Equity Market Development Programme, or EQDP, says DBS in a report.

Plenty of EQDP money is still waiting to be deployed.

The EQDP programme marked its first anniversary in July 2026.

The initial fund managers—J.P. Morgan Asset Management, Fullerton and Avanda—were awarded S$1.1 billion. Another six managers subsequently received S$2.85 billion.

S$3.95 billion has been allocated, but another S$2.55 billion—around 40% of the enlarged programme—has yet to be announced.

That undeployed capital matters because EQDP was designed to revitalise Singapore’s broader equity market.

DBS therefore believes that “EQDP and SMCs remain in play”, particularly if the market rally broadens.

The small-cap rally on pause mode

Small- and mid-caps attracted strong interest through much of 2025, and DBS argues that the underlying policy support for a broader Singapore market remains.

Attractive entry points

"Two-thirds (48 out of 72) of non-STI constituents have corrected >10% correction from their YTD peaks. The average non-STI stock is now trading 16% below its high despite fundamentals remaining intact, creating more attractive entry points for managers awaiting deployment."

-- DBS analysts Kee Yan YEO and Fang Boon FOO

Small- and mid-caps are now cheaper. The 2026 correction has also improved valuations and entry points.

Where could the money go?

DBS points investors towards the FTSE ST All Share Index, because many EQDP managers have selected it as their performance benchmark.

The index includes exposure beyond the 30 STI constituents, covering REITs, industrials, technology, consumer companies, financial firms and other smaller sectors.

Within this universe, DBS highlights five SMC themes and several stocks:

• Value unlocking: China Aviation Oil, which has net cash exceeding 50% of its market capitalisation and could return more capital to shareholders.

Valuetronics is committed to a new capital return plan and higher payout ratio.

• AI and technology: UMS Integration and AEM Holdings, supported by the semiconductor upcycle, new customers and increased exposure to AI-related demand.

• Higher-growth REITs: Keppel REIT and Centurion Accommodation REIT, where rental growth, organic expansion or balance-sheet strength could support distributions.

• Equity-market revival proxies: UOB-Kay Hian and iFAST, which could benefit from higher trading turnover, wealth growth and rising assets under administration.

• Stronger earnings outlooks: First Resources and Yangzijiang Maritime, where DBS expects improving prospects in the second half of 2026 and into 2027.

eq1

Takeaway

Not every small-cap stock will rise when the remaining EQDP money is deployed.

Fund managers will still favour companies with liquidity, earnings visibility and credible catalysts.

But after a sharp correction—and with S$2.55 billion still awaiting allocation—the conditions are becoming more supportive.

For investors who missed the bank-led rally, selected small- and mid-caps may offer the next area worth watching.

Why Singapore Small- and Mid-Caps May Be Ready for a Second Look

Where could the money go?

You may also be interested in: