Will Lower Interest Rates And CPF Changes Push More Funds into the Singapore Stock Market?

As 2025 unfolds, savvy investors in Singapore are watching closely as a combination of macro-economic shifts unfolds: T-bills' interests are softening, the Singapore Savings Bonds (SSB) are offering declining yields, high-yield savings accounts like UOB One and OCBC 360 are trimming their headline rates, and the much-loved Central Provident Fund (CPF) Special Account (SA) for individuals aged 55 and above has officially closed.

With these traditionally safe, fixed-income options becoming less attractive or obsolete, the big question on my mind is "will this wave of capital now turn towards the Singapore stock market, particularly into high-dividend plays like REITs and bank stocks, and push their prices higher"?

Why I Think More Liquidity May Enter the Market And Boost Dividend Stocks

1)     The Income Substitution Effect

With the erosion of “safe” passive income options like T-bills, SSBs, and high-yield savings accounts, income-seeking investors, especially retirees and those nearing financial independence, may be forced to look elsewhere.  Singapore dividend stocks, such as Development Bank of Singapore (DBS), Oversea-Chinese Banking Corporation (OCBC), United Overseas Bank (UOB), and selected REITs like CapitaLand Integrated Commercial Trust (CICT), offer yields upwards of 4 to 6%, which are substantially better than the sub 3% yields now seen in many fixed-income products.  This could possibly trigger a rotation of funds into these equities in search of yield.

2)     Excess CPF Savings Looking for New Homes

With the closure of the CPF SA and consolidation into the Retirement Account at 55, the young seniors and seniors no longer have the 4% risk-free safety net to grow and compound their retirement funds.  Instead, any amount above full retirement sum (FRS) will be channeled to the Ordinary Account (OA) to enjoy the 2.5% compounding interest.

As a result, some CPF members seeking higher yield may become more open to investing voluntarily with cash or even the excess monies in OA into the public markets to close the yield gap.

3)     Reduced Opportunity Cost of Risk

When interest rates were high, holding cash or putting money in short-term T-bills was a no-brainer for capital preservation.  However with yields heading south, the opportunity cost of staying in cash has gone up.  Investors who might have waited on the sidelines in 2023 or early 2024 may now be re-evaluating risk and becoming more willing to accept the price volatility of equities in exchange for long-term yield.  

This may also be exacerbated by the recent market correction due to the hefty tariffs and trade war from the US.  This correction presents an opportunity for investors, both new and experienced, to invest their cash pile into the market via dollar cost averaging (DCA) for higher probability of longer term gains despite short term volatility.

4)     Structural Demand from Retirement Planners

As more Singaporeans and investors in the local market move toward DIY retirement planning in the form of Barista FIRE, Coast FIRE, and traditional FIRE, myself included, the demand for income-producing assets is rising.  This structural shift may create a persistent demand for quality dividend stocks, especially those with defensive earnings and inflation-linked cash flows.

Why This May Not Happen (Or May Not Be Immediate)

1)     Risk Aversion Still Dominates Retail Investors

Many local investors, especially the older generation or CPF-focused savers, still favor capital preservation over capital growth.  The volatility of the equity markets may deter those who seek peace of mind over yield.  This is especially the case now where the US tariffs are causing havoc in equity markets globally.  With the plunge in the global markets, which have experienced more than 5% drop within a day, many would prefer the stability and the almost risk-free status that CPF OA can provide, and many would be satisfied with a 2.5% interest.

2)     Better Opportunities Abroad

With more platforms offering easy access to global stocks and ETFs, some investors may choose US dividend aristocrats, global bond ETFs, or even tech-focused growth stocks instead of Singapore-listed REITs, banks or other dividend-paying companies.
If the Singapore market does not offer compelling total returns, local liquidity could flow overseas rather than into SGX counters.

3)     Property and Alternative Assets as Capital Magnets

Singaporeans have a strong cultural affinity for property.  With interest rates expected to decline in the foreseeable future, property markets could see renewed interest, diverting capital away from the more volatile equity markets.

While the closure of the CPF SA for individuals 55 years old and above, and falling yields from government-backed instruments are favoring investment into equities, the actual shift of funds into Singapore dividend stocks will likely be gradual, not explosive.  What may happen could be a slow drip of funds into dividend-paying equities, with a preference for stability and defensive yield.  This may lead to a re-rating of high-quality dividend stocks, but only if global sentiment aligns and earnings hold up, which is unlikely to be anytime soon.

For me, CPF SA closure is still a long time away.  For now, I shall enjoy the 4% relatively risk-free compound interest for as long as I can (which is why I do not invest my CPF monies).  I shall fret over where my CPF funds should flow to when the time comes.  However based on current projections, I may not need to worry about that because if I am still unable to attain FRS by the time I reach 55 years old, all my CPF monies will just be channeled into the Retirement Account (RA).  For now, I shall just hope the near term volatility (with the bear market bias) will be over soon, so my portfolio can gradually stabilize and recover as I prepare for the commencement of my new phase of life, unlocking Barista FIRE!  Hoping for the best, while be prepared for the worst.  Barista FIRE, here I come...!