Taking stock of the Straits Times Index

PHOTO: Taking stock of the Straits Times Index

SINGAPORE - Years ago, tin, rubber and industrial stocks were the main indicators of how the Singapore stock market was faring.

These days, the 30-stock Straits Times Index (STI) serves as the key barometer for local equities that hail from sectors ranging from banking and commodities to offshore and marine.

Market experts note that the diversity of its component counters makes the index more stable.

Singapore Exchange (SGX) market strategist Geoff Howie said: "The 30 blue chip stocks make a well diversified index with the stocks representing as many as 14 different sectors... This reduces the chance that the STI is severely affected when one sector experiences a decline."

IG Markets Singapore market strategist Kelly Teoh said: "Unlike those of other Asian bourses, the STI is a rather stable index and lacks the volatility you see in other equity indices."

Mr Howie noted that the index includes companies that are steeped in history and have been providing goods and services to Singapore for a very long time, such as Singapore Press Holdings, which publishes The Straits Times newspaper.

Then there is also Singapore Airlines, whose predecessor Malayan Airways recorded its first flight in May 1947, he added.

STI constituents account for about 60 per cent of stock market turnover and 65 per cent of full market capitalisation.

SingTel is the largest single stock here by market value, and is worth more than $60 billion. The STI's predecessor was the Straits Times Industrials Index (STII), which began life on Dec 30, 1966, and comprised 30 counters.

The STII then made way for the 55-stock STI on Aug 31, 1998. Critics of the STII said fund managers had long ignored the old index, claiming that it gave a one-dimensional view of the market.

As its 30 counters are all from the industrial sector and index calculation is based on a price-weighted basis, this made the STII vulnerable to manipulation. That set the stage for the market value-weighted STI.

In 2008, the STI saw its first major revamp since 1998, with 47 component stocks trimmed to 30. The 30 component stocks remain unchanged after the most recent quarterly review last month.

The newest entrant in the index is Hutchison Port Holdings Trust, which replaced Singapore conglomerate Fraser and Neave on April 3.

The STI is also widely used as the basis of financial products including exchange-traded funds (ETFs), futures, warrants and other derivatives.

There are SGX-listed ETFs that track the STI - the SPDR STI ETF and the Nikko AM STI ETF.

"As a portfolio product, ETFs are efficient, transparent and flexible and can replicate the STI performance and diversification in one single security, which is traded like a stock," said Mr Howie. Like stocks, the two ETFs that track the STI also dish out dividends to investors.

The minimum board lot size is at 1,000 and 100 for the SPDR and Nikko ETFs respectively.

Investors wishing to find out more about the STI can head to the Invest Fair 2013 from Aug 2 to Aug 4 at Suntec exhibition halls 405 and 406.

There will be a booth there on the STI, highlighting the benefits of buying into index-related instruments and also how to invest in the index.

alfoo@sph.com.sg


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