There is, of course, merit in staying invested through cycles, particularly in a diversified basket of high-quality stocks. Constituents of the Straits Times Index (STI) also continue to appeal to income-focused investors, thanks to relatively high dividend yields. But dividends are only one part of total shareholder return — and since the Covid-19 pandemic, some of the STI’s largest members have posted outsized share-price gains driven by rising optimism about their ability to unlock value and grow. After such a strong run, investors may need to reassess their expectations.

ST Engineering’s surge raises questions about further upside

ST Engineering (S63) climbed 2.4 per cent last week, outpacing the STI’s 1.2 per cent rise, after a third-quarter business update that highlighted broad-based strength and continued expansion of its order book. The group also disclosed it is “reviewing strategic options” for a satellite communications unit that incurred a S$667 million impairment in Q3 2025.

While its operational performance and value-unlocking initiatives are lifting dividends, the numbers now look less compelling. The company plans to pay an interim S$0.04 per share for Q3 2025, a final S$0.06, and a special S$0.05 — the latter representing roughly one-quarter of cash proceeds from recent divestments. Together with previous payouts this year, total dividends will reach S$0.23 per share for 2025, up from S$0.17 in 2024.

But following an 82.2 per cent year-to-date rally — compared with the STI’s 20 per cent gain — that payout equates to a yield of just 2.7 per cent at ST Engineering’s current share price of S$8.49. Further dividend growth is possible beyond 2025, but the stock’s appeal to yield-seeking investors has clearly diminished. Buyers at this level appear to be banking more on continued share-price appreciation than on income.

A shift in the STI’s return profile

This dynamic is playing out more broadly across the Singapore market. From 2010 to 2019, the STI gained just 11.2 per cent, but delivered a 54.3 per cent total return on a dividend-reinvested basis — meaning share-price gains made up only one-fifth of the index’s overall return.

By contrast, the S&P 500 surged nearly 190 per cent over the same decade, with capital gains accounting for almost three-quarters of total return.

Since 2020, the picture has changed. From January 2020 to the end of last month, the STI generated a 78.6 per cent total return, with share-price gains contributing almost half. In 2024 alone, the STI rose 36.7 per cent, making up nearly three-quarters of its 50.7 per cent total return so far this year.

Stronger earnings at Singapore’s three banks, as well as restructuring and value-unlocking moves at several index constituents, have supported performance. Still, these gains have unfolded during a period of elevated global bullishness.

Rising global risks could challenge sentiment

There is growing concern that global markets may be vulnerable to a pullback. In its latest Financial Stability Review, the Monetary Authority of Singapore (MAS) noted that geopolitical risks and trade-policy uncertainty remain elevated, even as equity indices — buoyed by technology and artificial intelligence stocks — continue hitting record highs.

MAS warned that the widening gap between lofty valuations and rising downside risks “raises the prospects of disorderly corrections in the event of shocks”. It also highlighted the increasing use of complex private financing structures by large technology firms, which could obscure leverage and heighten vulnerabilities.

Should MAS slow its EQDP rollout?

Given these risks, some caution may be warranted. One measure MAS could consider is pacing the rollout of its Equity Market Development Programme (EQDP), which aims to channel S$5 billion into Singapore-focused fund managers. The scheme is widely viewed as one of the catalysts for the local market’s rally since early this year.

Thus far, MAS has allocated S$1.1 billion across three managers. Deploying the remaining funds amid global valuation concerns could risk fuelling excessive exuberance — potentially deepening the severity of any future correction and undermining market confidence.

Holding back the bulk of the EQDP capital may instead give the market more resilience during a downturn. If a sell-off arrives, investors could view the undeployed funds as supportive “dry powder”, reducing the risk of panic.

What investors can do now

For investors, the question is how to navigate today’s elevated market. One pragmatic approach is to lock in some gains and build cash reserves. Even if the concerns about a disorderly correction prove overstated, richly valued stocks may struggle to deliver meaningful returns over the next couple of years.

The hope is to redeploy capital gradually into a diversified set of promising opportunities — maintaining long-term exposure to the local market while recognising that cycles, sentiment and valuations still matter.

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