The Motley Fool

Sembcorp Marine Ltd Has Just Been Dropped from the Straits Times Index: What Investors Should Know

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 that 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 three co-creators – Singapore Press Holdings Limited  (SGX: T39)Singapore Exchange Limited  (SGX: S68), and FTSE Russell – announced that Sembcorp Marine Ltd (SGX: S51) will be dropped from the index.

Sembcorp Marine has seen its shares fall by nearly 70% in price over the past two years. Its business too, has suffered. The company’s a builder of oil rigs and the sharp fall in oil prices seen in recent years have had negative impacts. As an illustration, Sembcorp Marine’s profit of S$560.1 million in 2014 had become a loss of S$289.7 million in 2015.

Sembcorp Marine’s parent, Sembcorp Industries Limited (SGX: U96), still remains a part of the Straits Times Index.

Jardine Matheson Holdings Limited (SGX: J36), which was previously part of the Straits Times Index but was removed last September, will be welcomed back into the fold.

You say goodbye, I say hello

Jardine Matheson plays host to a number of Singapore-listed companies. The conglomerate has stakes in another two Straits Times Index components, namely, Jardine Cycle & Carriage Ltd (SGX: C07) and Hongkong Land Holdings Limited  (SGX: H78).

Jardine Matheson also has stakes in Dairy Farm International Holdings Ltd (SGX: D01)Mandarin Oriental International Limited (SGX: M04) and Jardine Strategic Holdings Limited (SGX: J37).

For context, Jardine Matheson was officially booted out of the Straits Times Index on 21 September 2015 when its share price was US$47. At yesterday’s market close, Jardine Matheson’s shares were trading at US$60.

The new benchwarmers

As part of the update on the index, the reserve list – a list of shares that are next in line to replace any of the Straits Times Index’s current constituents – also saw some changes.

The new reserve list consists of Singapore Post Limited  (SGX: S08)Keppel REIT (SGX: K17)Suntec Real Estate Investment Trust (SGX: T82U)Mapletree Industrial Trust (SGX: ME8U), and Mapletree Commercial Trust (SGX: N2IU).

Interestingly, there are four real estate investment trusts (REIT) in the reserve list.

Compared to the previous reserve list, shipping firm Neptune Orient Lines Ltd  (SGX: N03) has been dropped.

Foolish summary

Companies that get chosen to enter a stock market index can sometimes see short-term bumps to their share prices as index funds have to buy their shares to reflect the changes. Over the long-term though, our focus as investors should be on the quality of the underlying business.

To keep up to date on the latest financial and stock market news, sign up for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Singapore Exchange and Dairy Farm International Holdings. Motley Fool Singapore contributor Chin Hui Leong owns shares in Suntec REIT, Dairy Farm International Holdings and Hongkong Land Holdings.