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What Does The Change In STI Components Mean For Singapore’s Investors?

Here’s what you need to know about the change in STI components

Jardine Matheson Holdings will rejoin the Straits Times Index (STI) on 19 Sept 2016, replacing Sembcorp Marine in the index.

STI components are free-float weighted to ensure that only the investable opportunity set is included in the index. With the changes in STI components, Jardine Matheson Holdings is expected to be the 5th largest component in the STI, holding 6.5% of the total market capitalization (price x number of shares). This weightage can also represent the sensitivity of the STI to the change in the price of an individual stock. That is, every 100% increase in the price of Jardine Matheson Holdings would translate to 6.5% increase in the price of the STI, with all else being constant.

The inclusion of Jardine Matheson Holdings would also change the weightage of STI components. The following are the changes:

Constituent June 30 Index Weight (%) NEW Indicative Index Weight (%) based on June 30 Data Constituent June 30 Index Weight (%) NEW Indicative Index Weight (%) based on June 30 Data
Singapore Telecommunications 13.1 12.4 Singapore Airlines 2.3 2.2
Overseas-Chinese Banking 12.3 11.5 Singapore Technologies Engineering 2.1 2.0
DBS Group Holdings 12.2 11.5 City Developments 2.1 2.0
United Overseas Bank 9.6 9.0 Genting Singapore 1.9 1.8
Jardine Matheson Holdings N/A 6.5 Jardine Cycle & Carriage 1.8 1.7
Hongkong Land Holdings 4.2 3.9 Hutchison Port Holdings Trust 1.4 1.3
Thai Beverage 3.9 3.6 CapitaLand Commercial Trust 1.3 1.2
Keppel 3.4 3.2 SATS 1.1 1.1
CapitaLand 3.4 3.2 UOL Group 1.1 1.1
Wilmar International 3.0 2.8 Sembcorp Industries 1.1 1.0
Singapore Exchange 2.7 2.6 Golden Agri-Resources 1.0 0.9
Singapore Press Holdings 2.7 2.6 StarHub 1.0 0.9
CapitaLand Mall Trust 2.5 2.3 Yangzijiang Shipbuilding Holdings 0.8 0.8
ComfortDelGro 2.4 2.3 Sembcorp Marine 0.6 N/A
Ascendas REIT 2.4 2.2 SIA Engineering 0.4 0.3
Global Logistic Properties 2.4 2.2

Source: SGX My Gateway

You can read more about the changes for the STI on the SGX My Gateway Update sent out on 19 September 2016.

Read Also: 3 Things You Should Know About SGX Dual-Class Share Listing

Is This Something To Be Worried About?

It is not unusual for companies to be replaced during the semi-annual review. Previously, Jardine Matheson Holdings, Olam International, and Jardine Strategic Holdings were also replaced by SATS, UOL Group, and Yangzijiang Shipbuilding Group since they did not fulfil the liquidity requirement. For existing companies to remain in the STI, securities must trade at least 0.08% of their issued shares in 8 of the 12 months prior to the review.

What We Can Expect

In the short run, due to changes in the weightage of the individual components, there might be some fluctuations in the prices of individual components as funds which track STI. For example, Nikko Asset Management and SPDR STI ETF will be rebalancing their portfolio to reflect the change.

As for the long run, since Jardine Matheson Holdings is now the fifth largest STI component, we can see that the performance of STI is dependent on the performance of the stock. However, we can see the health of STI remains largely dependent on the 3 banks and 1 local telecommunication company as they take up 40% of the total weight.

As for Jardine Matheson Holdings, its re-entrance to STI might cause an increase in stock price as index fund trackers buy up to rebalance their portfolio. However, it is important for investors to conduct due diligence on the business growth stories and the potential long-term upside before investing in the stock.

Read Also: Why Long-Term Investing Isn’t Always Better Than Short-Term Trading

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