Straits Times Index (Singapore) Essay

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The Straits Times Index (STI) is compiled by the Singapore Straits Times newspaper (which is owned by Singapore Press Holdings) and is considered Singapore’s premier equity index. STI is Singapore’s main market benchmark, which has evolved as part of a partnership between Singapore Press Holdings (SPH), FTSE Group, and Singapore Exchange (SGX). The STI is calculated by using data from SPH, FTSE, and SGX. The aim of the collaboration is to create a comprehensive suite of indices that will better reflect the performance of various sectors of the Singapore stock market and meet the needs of both retail and institutional investors.

STI was formed in August 1998 to replace the Straits Times Industrials Index (STII), which saw the removal of the “industrials” category from the index. Since 1998, the STI has comprised between 30 to 55 of the exchange’s most valuable firms. Together, these components represent more than 60 percent of the total market value of all issues traded on the Singapore Stock Exchange. STI is a modified weighted index that ensures that the largest firms have the greatest impact on the index’s value. Designed to provide both domestic and international investors with opportunities to access the Singapore market, the STI currently represents the performance of the top 30 Singaporean companies by market capitalization.

STI is the headline index of the FTSE. Stocks are free float weighted and liquidity screened to ensure that the index is tradable. This means that portfolio investments, nominee holdings, and holdings by investment companies represent more than 15 percent of any one company’s listing, and that stocks retain a median daily turnover value of at least .05 percent of the value of its free float–adjusted shares in issue for 10 out of the past 12 months.

To qualify for inclusion in any index, the market capitalization of a listed company must fall within the top 98 percent by full market capitalization of all SGX main board companies. As of December 31, 2007, the STI top 10 companies held 69 percent of the net market capitalization share and include Singapore Telecom, DBS Group Holdings, United Overseas Bank, Overseas Chinese Banking Corporation (OCBC), Keppel Corp., Singapore Exchange, Hong Kong Land, Singapore Airlines, City Developments, and Capitaland. With a net market capitalization of more than SG$232 million, banks retain the highest sector representation on the STI, accounting for over SG$65 million of the net market capitalization of the index, followed by general industries (SG$31 million), real estate (SG$29 million), and travel and leisure (SG$22 million).

A transparent and public set of rules is used to manage the indices to ensure that a continuous and accurate representation of the market is maintained. To achieve this, the STI is overseen by an independent advisory committee comprised of market practitioners and/or representatives from SPH, SGX, and FTSE, with reviews taking place semiannually in March and September. One such review in 2005 raised the number of stocks from 45 to 50. In doing so, the change increased its total market capitalization to 75 percent, while reducing the index representation of the average daily traded value to 60 percent. Other changes have included stock additions (e.g., Suntec REIT, Olam, Genting International, Labroy Marine, CapitalCommerical, and Thai Beverage in February 2007) and stock removals (e.g., Dairy Farm, Haw Par Corporation, BIL, and TPV Technology). The most significant change occurred in December 2007, in which the SPH, SGX, and FTSE announced a major overhaul of the STI. In 2008, the revamped STI dropped from 55 to 30 component stocks, with 18 new indices being created. A new family of FTSE ST indices consists of 5 benchmark and 13 industry indices, which includes an index to represent China stocks listed in Singapore. To facilitate cross-border analysis and comparisons, the new indices adopt FTSE’s international methodology and are based on the International Classification Benchmark (ICB), the renowned classification system created by Dow Jones Indices and FTSE. The STI currently comprises 30 blue-chip companies ranked by market capitalization as of August 31, 2007.

Bibliography:

  1. “The FTSE ST Series of Market Indices,” Straits Times (May 5, 2008);
  2. Straits Times Index (STI) Fact Sheet (FTSE The Index Company, 2007).

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