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An Analysis of the Straits Times Index’s Benchwarmers

It’s not a secret that the Straits Times Index (SGX: ^STI) is made up of 30 of some of the largest shares listed in Singapore. However, do you know that the STI also has a reserve list of companies which are next in line to become an index component if something happens to any one of the current 30?

Such replacements aren’t all that rare. For instance, it happened when Thai billionaire Mr. Charoen Sirivadhanabhakdi won majority control of Fraser and Neave Limited (SGX: F99) early last year. The share was eventually replaced by Hutchison Port Hldg Trust (SGX: NS8U) in the index.

The most recent change in the index’s constituents had occurred in June this year when Ascendas Real Estate Investment Trust (SGX: A17U) replaced CapitaMalls Asia Limited; the latter had been taken private by its parent company, CapitaLand Limited (SGX: C31) last month.

Let’s take a closer look at the current crop of reserves for the index and see what it can tell us about the market.

The benchwarmers

The latest reserve list for the index comprises of Keppel Land Ltd (SGX: K17), UOL Group Limited (SGX: U14), CapitaCommercial Trust (SGX: C61U), Suntec Real Estate Investment Trust (SGX: T82U) and Yangzijiang Shipping Holdings Ltd (SGX: BS6).

The first thing that jumps out at me about the list is the huge concentration of companies in the real estate industry. Other than Yangzijiang, the others are all either property developers or real estate investment trusts.

Secondly, it might be interesting to note that three of the five reserves are related to the current constituents of the STI. Keppel Land Ltd is a subsidiary of Keppel Corporation Limited (SGX: BN4), UOL Group is related to United Overseas Bank Ltd (SGX:U11), and CapitaCommercial Trust is being managed by CapitaLand. If these three companies are upgraded to the STI, it will likely improve their reputation amongst the investing community.

The third observation I have is that, judging from recent replacements and the current reserve list, the growing importance of investment trusts in Singapore is quite apparent. The appearance of such a trend could stem from the fact that bank deposit rates are so low here, thus making the high-yielding investment trusts an attractive place for investors.

Foolish Summary

It is interesting to note the changes in the composition of the index. For now it seems, investors might be looking at a higher exposure to the property market if anything changes to the current constituents of the STI.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim owns Frasers Centrepoint Ltd and Keppel Corporation