OCBC sees upside in SGX small and mid-caps on Singapore growth tailwinds despite Middle East tensions
Improvement in average daily turnover across SMID stocks most pronounced after announcement of EQDP asset managers
[SINGAPORE] Sentiment for small and mid-cap (SMID) stocks on the Singapore Exchange (SGX) could improve on the back of the temporary two-week ceasefire between the US and Iran calming immediate market nerves, said OCBC’s equity research team on Monday (Apr 13).
Such stocks are typically seen as more vulnerable to economic shocks and higher interest rates, making them more sensitive to shifts in global risk sentiment.
Even so, OCBC believes SMID stocks remain well placed to benefit from Singapore’s structural growth, particularly through value unlocking opportunities and relatively attractive income yields.
“What is even more important for us to focus on is liquidity, given that it is key in facilitating price discovery, mitigating extreme price impact and volatility, and also improving use of execution so that investors can better manage risk,” said Ada Lim, equity research analyst at OCBC, at a media briefing.
She pointed out that mid-cap stocks led improvements in liquidity following the formation of the Monetary Authority of Singapore’s (MAS) equities market review group in August 2024.
“(But) in the grander scheme of things, we realised that small-cap stocks … saw the overall biggest improvement,” added Lim.
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Notably, the improvement in average daily turnover across SMID stocks was most pronounced after the announcement of the first tranche of asset managers under MAS’ S$6.5 billion Equity Market Development (EQDP) programme in July 2025.
Liquidity gains were more muted following the second tranche in November, which OCBC attributed partly to seasonal factors such as year-end holidays, as well as ongoing global macroeconomic uncertainties, with US’ invasion of Venezuela and the subsequent Iran war.
Looking ahead, the OCBC team expects further support for market liquidity from the appointment of fund managers for the remaining S$2.55 billion under the EQDP, as well as the continued deployment of capital by existing managers till to 2027.
Additional upside could emerge from 2028, when the Central Provident Fund (CPF) is expected to introduce simplified, low-cost equity investment schemes, which may include allocations to Singapore equities.
Stock picks
Against this improving backdrop, OCBC identified nine preferred SMID picks with market capitalisations below S$3 billion:
- Boustead Singapore
- CapitaLand India Trust
- China Aviation Oil
- Hong Leong Asia
- Info-Tech Systems
- Nordic Group
- OUE Reit
- Parkway Life Reit
- Stoneweg Europe Stapled Trust
These stocks have a potential upside ranging from 11 to 44 per cent.
On its selection of these stocks, Andy Wong, senior equity research analyst at OCBC, told The Business Times that the bank has chosen few stocks from the industrials sector as it is “quite broad in nature”, while maintaining a more neutral stance on real estate and financials.
He added that while the outlook for rate-sensitive sectors such as real estate investment trusts (Reits) appeared more supportive at the start of the year, geopolitical tensions that emerged since February have clouded the picture, with markets reassessing the likelihood and timing of potential rate cuts by the Federal Reserve.
Lim said that OCBC is still quite cautious for the aviation sector as it will take some time for confidence to be restored even if geopolitical tensions ease. Therefore, OCBC prefers upstream exposure within the aviation value chain, including companies linked to jet fuel supply such as China Aviation Oil.
Boustead Singapore was picked for its diversified business model and exposure to multiple segments, including energy. A key aspect of its investment case lies in its value-unlocking initiatives, such as the spin-off listing of a Reit.
On the technology front, Info-Tech Systems stood out as the only tech name among OCBC’s picks. Lim noted that the company’s exposure to the small and medium-sized enterprise (SME) segment is particularly attractive, given strong growth in the space and continued government support for digitalisation efforts.
Info-Tech Systems is the first pure-play software-as-a-service provider for human resource management and accounting software to be listed on the SGX and caters specifically to SMEs.
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