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Is DBS Group Holdings Ltd The Most Popular Constituent In The Straits Times Index?

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Not all blue chips are created equal. At least they’re not in terms of the level of interest they can generate amongst investors.

Looking at the average daily transacted value for each company within the Straits Times Index (SGX: ^STI), we can get a sense of which companies investors are generally more interested in.

On that front, DBS Group Holdings Ltd (SGX: D05) is the clear winner this year; the bank has seen S$65.8 million worth of its shares changing hands everyday on average since the start of 2014. At the other end of the spectrum is SIA Engineering Company Ltd (SGX: S59) – only S$1.88 million worth of its shares changed hands daily on average.

From this, it’s easy to jump to the conclusion that DBS is the most popular share in the STI and SIA Engineering is the one uncool kid in the room. But, this does not tell the entire story. That’s because the two companies are very different in size. DBS, with a market capitalisation of S$44.0 billion, is about nine times larger than SIA Engineering, which has a market capitalisation of ‘just’ S$5.0 billion.

So, it might be better to compare the STI constituents in terms of their average daily transacted value as a percentage of their market capitalisation.

And the winner is?

If we measure the most active share using the calculation I gave above, there’s a very interesting result. Noble Group Limited (SGX: N21) turns out to be the most active constituent in the STI, with more than 0.31% of its total market capitalisation transacted daily. The least active? That’s Jardine Strategic Holdings Limited  (SGX: J37) which only had 0.017% of its market capitalisation transacted on average daily.

So what?

What is the whole purpose of this exercise you might ask?

Well, I am a numbers-guy so the exercise was  fun in and of itself. But more importantly, I realized that there seems to be an interesting relationship between the price of a share and the amount of trading activity. Shares with very high price tags such as Jardine Strategic and Jardine Matheson Holdings Limited  (SGX: J36) tend to be rather inactive in the market while lower priced shares such as Noble Group and Golden Agri-Resources Ltd (SGX: E5H) are very active.

Company Share price as of 22 August 2014
Jardine Strategic Holdings US$35.95
Jardine Matheson Holdings US$59.80
Noble Group S$1.39
Golden Agri-Resources S$0.510

Source: S&P Capital IQ

Theoretically, the price of a share has nothing to do with the fundamentals of the company it represents and it should be the strength of the fundamentals of a company which should determine the level of investor interest.

But, for the case of Singapore at least, it’s also logical to conclude that the extremely high price of a share alone might deter investors from being interested in them as investors can only trade in lots of 1,000 shares each for most shares listed here (fortunately, the board lot size rule is set to change in the coming months).

So, does this mean that there might be more opportunity for mispricings (i.e. a discrepancy between a company’s value and its share price) in the highly-priced shares? That might be worth some thought.

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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 doesn’t own shares in any companies mentioned.