8 September 2011

Singapore Sectors & Benchmarking

• The STI is composed of 30 constituents and the SiMSCI composed of 32 constituents. There are 26 mutual constituents that account for 85.54% of the STI and 92.92% of the SiMSCI market capitalizations.
  
• August average daily trading volume of SGX SiMSCI futures rose to an 23,544 lots, with month-end Open Interest firming from 46,599 contracts in July to 49,910 contracts in August.
  
• Total traded value of warrants on STI and SiMSCI rose 72% month-on-month to $146 million in August, representing 20% of the total warrants market turnover compared to 15% in July.
  
• The Consumer Sectors have displayed some variation relative to the Index performance in the first four sessions of September versus its performance in August.

Singapore has two benchmark equity indices, the Straits Time Index (STI) and the MSCI Singapore Free Index^TM (SiMSCI). The two indices have differences in terms of constituents, weightings and pricing levels. The STI is made of 30 constituents with the SiMSCI made of 32 constituents. There are 26 mutual constituents that account for 85.54% of the STI and 92.92% of the SiMSCI market capitalisations (as of 7 September 2011).

The SiMSCI is most weighed to financials that represent 47% of its market capitalisation, with industrials representing 24% and telecommunications representing 12%. The consumer sector is comprised of discretionary and staples names that respectively represent 9% and 8% of SiMSCI market capitalisation. In terms of capitalisation, the top 4 of the 32 constituents, DBS Group Holdings, Singapore Telecom, United Overseas Bank and OCBC Bank account for 42 percent of the SiMSCI.

SiMSCI Sector Weights

These five sectors have had varied performances in the month of August and the first four trading sessions of September. The table below details the contrasting performances as well as the overall SiMSCI Index. The SiMSCI Index fell 10.56% over the month of August and has fallen 3.50% between 31 August and 6 September. The performance of the index has been almost paralleled by the financial sector which, as aforementioned, accounts for almost half of the Index weightings.

SiMSCI Index and Sectors

Of interest, the theme of index underperformance of the Industrial Sector over August has continued into the first four trading sessions of September with the sector declining 6.37% versus the Index declining 3.5%. In addition, the theme of index outperformance of the Telecommunication Services Sector over August has continued into the first four trading sessions of September with the sector declining 1.4% versus the Index declining 3.5%.

The Consumer Sectors have displayed some variation relative to the Index performance in the first four sessions of September versus its performance in August. The Consumer Discretionary Sector slightly outperformed the Index in August however slightly underperformed the Index in the first four sessions in September. The Consumer Staples Sector also outperformed the Index by more than 2% and has underperformed the Index by more than 1% in the first four sessions in September.

The table at the end of this update details the constituents that represent each of the above sectors with their respective weightings and Tuesday 6 September closing prices.

SiMSCI Constituents

The constituents detailed above have a minimum size of 1 lot at 1000 units per lot which implies that the notional amount per lot is the price per unit multiplied by 1000. For example, the notional investment for DBS Group Holdings, based on the 6 September closing price is $12,700 (that is, 1 lot multiplied by 1000 units multiplied $12.70). The notional investment for Noble Group, based on the 6 September closing price is  $1,480 and Starhub is $2,820.

Warrant Participation

Total traded value of warrants on STI and SiMSCI rose 72% month-on-month to $146 million in August, representing 20% of the total warrants market turnover compared to 15% in July. Amidst the market dynamics of August, Puts accounted for 67% of the turnover in this market segment up from 13% in July.

More recently, the STI and SiMSCI gained 3.5% and 3.1% respectively for the week 29 August to 2 September. Using a few examples in the table below, call warrants offer an alternative avenue for investors to participate on the uptrend of the indices. As of 6 September, there are 12 warrants (6 calls and 6 puts) on STI and 4 warrants (2 calls and 2 puts) on SiMSCI.

Unlike other leveraged instruments, warrant investors are not subject to cash top-ups when the underlying moves adversely against their position. Thus, investors do not risk more than their initial amount paid for the warrants, a fraction of the underlying asset.

Exchange Traded Funds

There are currently two Exchange Traded Funds (ETF) tracking the STI and one ETF based on the SiMSCI. All three ETFs are cash-based ETFs, which mean ETFs which hold the same stocks in the same weightings as the benchmark index or a sample of constituent stocks that statistically representing the index. The details of these ETFs are tabled below.

SiMSCI Futures

On 6 September, the SGX SiMSCI futures contract settled at 319.1, implying a notional value of SGD $63,820 (319.1 x SGD200). Based on a price of 319.1, the table below details the following variation margins at prices of 310.0 and 320.0 that would apply to a long or short position taken at 319.1.

In terms of participation, August average daily trading volume of SGX SiMSCI futures rose to an 23,544 lots, with month-end Open Interest firming from 46,599 contracts in July to 49,910 contracts in August.

The SiMSCI has varied exchange traded products and application use for hedgers, investors and traders. There are a number of further dimensions that attract traders to this benchmark that include volatility, arbitrage and pair trading. Hedgers, investors and traders should always understand the characteristics and risks of these markets before instigating their investment or trade.

Specified Investment Products

As part of the Monetary Authority of Singapore’s (MAS) initiative to introduce stronger measures and enhance requirements to further safeguard the interests of individual investors Futures, Exchange Trading Funds and Warrants have been categorised as Specified Investment Products (SIPs).

SGX SIPs have structures, features and risks that may be more complex in nature. From Jan 2012, the MAS will require broking firms to ascertain whether an individual investor has the relevant knowledge and experience to understand the risks and features of SIPs before allowing the individual to open an account to trade SIPs listed on both securities and derivatives markets.

SGX has introduced two online initiatives, a Customer Account Review Module and an Online Education programme, to support individual investors in their understanding and trading of SIPs listed on SGX. Click here to access these initiatives.

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