|31 August 2017|
|Jardine Strategic Scheduled to Join STI on 18 September|
The Straits Times Index (STI) is the most globally-recognised benchmark index and market barometer for Singapore, celebrating its Jubilee anniversary this year.
In the first eight months of 2017, the STI has generated a 13.8% price gain, with its competitively high dividend yield boosting its total return to 17.1%. this compared to an average of 11.0% in SGD terms, for the S&P/ASX 200, Hang Seng Index and Nikkei 225 Index.
Jardine Strategic Holdings Will Join STI With Effect of 18 September
The STI is a free float adjusted market capitalisation weighted index representing the performance of the largest Singapore stocks which pass the size, free float, and liquidity screens. The results of the most recent review of these screens were published today, on Thursday 31 August. At the most recent review, Jardine Strategic Holdings [“Jardine Strategic”] re-joined the STI, replacing SIA Engineering. SIA Engineering will join the STI Reserve List.
The results of this rebalance can be found here.
Potential Weighting Changes
Based on Index weightings on 30 June 2017, SIA Engineering had previously maintained a 0.3% weight in the STI, whereas Jardine Strategic, based on its 30 June free-float capitalisation, would maintain a potential 3.7% weight in the Index. This would make Jardine Strategic the seventh biggest weight in the STI, ranked between Hongkong Land and Keppel Corp.
Together Jardine Matheson Holdings, Hongkong Land, Jardine Cycle & Carriage and Jardine Strategic Holdings will make up potentially 15.5% of the Index weight. Note this is an indicative weight only, and based on public free-float information on 30 June. Moreover weights would have seen marginal changes over the past two months as the STI has since gained 1.7% with 19 gainers, one stock unchanged and 10 decliners.
Both Jardine Strategic and SIA Engineering represent the Industrials Sector, hence the STI will continue to include 10 Industrials stocks. However, based on 30 June prices, the inclusion of Jardine Strategic Holdings will potentially see the Industrials Sector now make up 22.4% of the STI, rather than 19.7% previously.
The potential sector weightings of the STI (based on 30 June 2017 prices) with SIA Engineering, and then with Jardine Strategic in place of SIA Engineering, are illustrated below. Note the Financials Sector is expected to see its Index weightage trimmed by more than 1.0%.
Potential Sector Weights with Jardine Strategic Inclusion (based on 30 June Prices)
Source: FTSE Russell & SGX (Data based on 30 June 2017 prices).
At the most recent review, all eligible constituents of the STI had to be existing or pending constituents of the FTSE ST All-Share Index. This review was based on data from the close of business on Monday 21 August, which as stated in the Review Timetable is the Monday four weeks prior to the review effective date of the rebalance on Monday, 18 September.
During the process a stock would be inserted into the STI at the quarterly review if it is at 20th position or above when the eligible securities are ranked by full market capitalisation (before the application of any investability weightings); Stocks must turnover at least 0.10% of their shares in issue (after the application of any investability weightings) based on their median daily trade per month in ten of the twelve months prior to this September review. For existing constituents, securities must trade at least 0.08% of its shares in issue in eight of the twelve months.
A stock in the STI would be deleted at the quarterly review if it falls to 41st position or below when the eligible securities are ranked by full market capitalisation (before the application of any investability weightings) however no such deletions were made at the recent review. More details on the required thresholds can be found here.
Source: FTSE Russell & SGX (Data based on 30 June 2017 prices).
Jardine Strategic Holdings
Jardine Strategic’s principal interests are in Jardine Matheson, Hongkong Land, Dairy Farm International, Mandarin Oriental, Jardine Cycle & Carriage and Astra International. It has a minority interest in Zhongsheng Group, one of mainland China's leading motor dealership groups.
For its 1HFY17 Jardine Strategic reported underlying profit growth of 19% from 1HFY16. Its stock price has gained 24.5% in SGD terms in the 2017 year thus far. Note, like Jardine Matheson Holdings, Hongkong Land Holdings and Hutchison Port Holdings, Jardine Strategic is traded in USD.
With its 1HFY17 Results, Chairman Sir Harry Keswick noted that good trading is expected to continue in a number of the Group’s businesses in the remainder of the year, although the level of profit growth in 2HFY17 is likely to be tempered due to fewer residential completions expected in Hongkong Land and price competition in a number of the Group’s automotive markets.
STI Reserve List
FTSE also publishes the five highest ranking non-constituents of the STI at the time of the quarterly review. Rather than being the port of call at the quarterly review, the STI Reserve List will be used in the event that one or more constituents are deleted during the period up to the next quarterly review.
As detailed here, the rules for inserting and deleting securities at the quarterly review are designed to provide stability in the selection of constituents of the STI, while ensuring that the Index continues to be representative of the market by including or excluding those securities that have risen or fallen significantly.
These five STI reserve stocks include Suntec REIT, Mapletree Commercial Trust, Venture Corporation, SIA Engineering and Keppel REIT.
The STI serves other purposes aside from its key benchmark role and has been designed for the creation of structured products, index tracking funds and ETFs, or for use as a performance benchmark.
SGX have also listed two ETFs that track the Index – the first the SPDR® STI ETF which has been listed since April 2002 and the Nikko AM ST ETF which has been listed since February 2009. From inception the SPDR® STI ETF has generated annualised total returns of 7.3% and the Nikko AM ST ETF has generated annualised total returns of 11.2%.
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