Singapore’s Straits Times Index (STI) has had a notable year in 2024, standing out as Southeast Asia’s best-performing stock market index. With a year-to-date gain of over 17% and a 17-year-high of 3842 in December, the STI has shown resilience and steady growth. This impressive performance was driven by the strength of Singapore’s leading banks and a supportive economic environment.

The Big Three Banks at the Core of STI’s Growth

The STI tracks the 30 largest companies listed on the Singapore Exchange (SGX). This year, its performance has been largely driven by the “Big Three” banks: Development Bank of Singapore (DBS), Oversea-Chinese Banking Corporation (OCBC), and United Overseas Bank (UOB). Together, these banks make up over half of the index’s market-weighted value, underlining their influence on the broader market.

DBS, Southeast Asia’s largest bank, led the charge, with its stock climbing over 40% this year. Contributing factors included stable net interest margins, robust performance in wealth management, and a headline-grabbing SGD 3 billion share buyback in November. The announcement immediately boosted investor sentiment, pushing DBS’s stock up by 6.5% in just one trading day.

OCBC and UOB also performed strongly, with both gains over 25%. Both banks benefited from steady economic conditions, disciplined capital management, and optimism about their future growth potential. UOB’s indication of a possible share buyback program further boosted its stock price by 7% in a single day. Without the contributions of these banks, the STI’s gains would have been much smaller, likely limited to single-digit growth.

Why the Banking Sector in Singapore Thrived in 2024

Singapore’s banking sector experienced notable growth in 2024, driven by a combination of favorable global economic conditions, strategic decisions by banks, and resilience in key business areas.

Singaporean banks maintained robust NIMs, which were at their highest in a decade. This was largely thanks to the U.S. Federal Reserve’s measured approach to rate adjustments, which avoided the rapid erosion of margins typically seen in rate-cutting cycles. DBS, for instance, reported a sustained NIM above 2% for most of the year, the highest in a decade. This allowed Singapore’s banks to weather global financial uncertainties effectively, keeping their core lending businesses profitable. However, there was an expectation of slight NIM erosion in the latter half of the year as interest rates began to decline.

Wealth management divisions became a major driver of income for Singaporean banks in 2024. Investor appetite for structured products, unit trusts, and bancassurance surged as markets stabilized. DBS saw its wealth management fee income rise by 18% year-on-year in Q3 2024. This trend reflected the success of the strategic efforts by the banks to expand their advisory services and product offerings. As investors sought to reposition portfolios under the fast-changing economic circumstances in the region, Singaporean banks were well-positioned to capture these flows.

In addition, the share buyback programs introduced by DBS and hinted at by UOB reflect not only strong capital positions but also a commitment to returning value to shareholders. These moves have boosted investor confidence, setting the stage for continued gains.

What are the Next Opportunities and Challenges for the STI?

As analysts and investors look ahead to 2025, optimism remains tempered by global uncertainties. The potential return of Donald Trump to the U.S. presidency looms large. His economic policies—particularly around inflation and tariffs—could influence interest rate trajectories and, by extension, bank profitability.

DBS’s outgoing CEO, Piyush Gupta, highlighted that a Trump-led administration might sustain higher interest rates, a scenario that historically benefits DBS. Meanwhile, OCBC’s CEO, Helen Wong, pointed out that increased Chinese investments in Southeast Asia, spurred by geopolitical tensions, could open new revenue streams for Singaporean banks.

Despite the upbeat headlines, Singapore’s stock market faces structural challenges that could limit its long-term growth.

Liquidity remains a critical issue. The number of listed companies on the SGX has been shrinking, falling from 723 in 2019 to just 617 in 2024. The pandemic exacerbated this decline, but the problem runs deeper. Without a steady pipeline of initial public offerings (IPOs), particularly in sectors like real estate investment trusts (REITs), Singapore risks losing its appeal to a diverse investor base.

The STI’s heavy reliance on its banking sector highlights the lack of diversification in Singapore’s equity market. While banks have outperformed, other sectors have lagged, limiting the broader market’s ability to attract new investors and companies.

Macquarie Securities notes that the index’s fate rests largely on the continued performance of the Big Three banks. But they also stress that broader market reforms by Singapore’s Monetary Authority (MAS) will be crucial. The potential for “value-enhancing reforms,” they argue, could push the STI even higher. Asian investors should remain vigilant and diversify portfolios beyond the banking sector to mitigate risks and capitalize on new growth drivers.