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Noble Group Limited to be Dropped from the Straits Times Index

As Foolish investors may know, the Straits Times Index (SGX: ^STI), the most prominent market benchmark in Singapore, is made up of 30 different stocks.

What may not be well known is that the list of 30 is reviewed on a quarterly basis to determine whether any changes should be made. In a joint press release yesterday, the index’s co-creators – Singapore Press Holdings Limited (SGX: T39)Singapore Exchange Limited (SGX: S68), and FTSE Russell – announced that Noble Group Limited (SGX: N21) will be dropped from the index.

Noble Group will be handing its baton to CapitaLand Commercial Trust (SGX: C61U), a stock from the Straits Times Index’s reserve list.

As a brief background, CapitaLand Commercial Trust is one of the largest commercial real estate investment trusts in Singapore by market capitalization. It is managed and partially owned by local real estate juggernaut CapitaLand Limited  (SGX: C31). Incidentally, both CapitaLand and its REIT peer, CapitaLand Mall Trust (SGX: C38U), are also components of the Straits Times Index.

The new benchwarmers

As part of the update, the reserve list for the Straits Times Index was also updated.

The new list consists of Singapore Post Limited  (SGX: S08)Keppel REIT (SGX: K17)Suntec Real Estate Investment Trust (SGX: T82U)Neptune Orient Lines Ltd  (SGX: N03) and First Resources Ltd (SGX: EB5).

From the previous reserve list, Singapore’s smallest telecommunications company M1 Ltd (SGX: B2F) was dropped.

The addition of CapitaLand Commercial Trust could be a reflection of the growing importance of REITs in Singapore’s stock market. In a recent update, the SPDR STI ETF (SGX: ES3), an exchange traded fund which mimics the fundamentals of the Straits Times Index, said that over 18% of its holdings consists of stocks related to the real estate sector.

Foolish summary

In general, being removed from the index can either be good news or bad news for the business.  The future of the CapitaLand Comment Trust will depend on different variables such as the underlying businesses of the REIT.

In general, being removed from the index does not necessarily mean a business is in trouble. Noble Group, though, had been one of the worst performers in the index last year.

All of the changes mentioned above will take effect on 21 March 2016.

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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 Chin Hui Leong owns shares in Suntec REIT.