Investors use a country’s stock market index to get a flavour of what the country has to offer.
In Singapore, the Straits Times Index (SGX: ^STI) is our stock market benchmark. Similarly, in our neighbouring country Malaysia, the FTSE Bursa Malaysia KLCI is its main stock market index. Both indices have 30 index components.
The Straits Times Index’s major components
As of 31 January 2019, the top 10 constituents of the STI took up 69.8% of the index. The top three components of the index are all made up of banks – DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corporation Limited (SGX: O39), and United Overseas Bank Ltd (SGX: U11).
Other heavyweights of the index include Singapore Telecommunications Limited (SGX: Z74), Keppel Corporation Limited (SGX: BN4) and CapitaLand Limited (SGX: C31). The following table gives more light on the top 10 index components and their respective weights:Source: Straits Times Index factsheet
The FTSE Bursa Malaysia KLCI’s major components
In comparison, FTSE Bursa Malaysia KLCI’s top 10 components occupied 62.7% of the index. Public Bank Berhad (KLSE: 1295.KL), Malayan Banking Berhad (KLSE: 1155.KL), and Tenaga Nasional Berhad (KLSE: 5347.KL) are the three largest shares of Malaysia’s stock market index.
Other index components of FTSE Bursa Malaysia KLCI are PETRONAS Chemicals Group Bhd (KLSE: 5183.KL), Axiata Group Berhad (KLSE: 6888.KL), and Genting Berhad (KLSE: 3182.KL). The following table shows the top 10 index components and their respective weights:Source: FTSE Bursa Malaysia KLCI factsheet
Carrying the weight
From the comparison, we can see that banks took up most of the indices in both countries. In Singapore, the three major banks accounted for 39.7% of the Straits Times Index whereas for the FTSE Bursa Malaysia KLCI, Public Bank, Maybank, and CIMB took up 32.3% of the index. In total, seven banks are part of the FTSE Bursa Malaysia KLCI, and they occupy 38.5% of the index.
What the above means is that the performances of the banks have a significant impact on how both the indices perform. Any major slip-ups from the banks due to macroeconomic headwinds or poor performance on their part could cause the indices to fall heavily. On the contrary, if the banks perform well, the indices should see corresponding increases too.
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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 DBS, OCBC, UOB, Hongkong Land, CapitaLand, Public Bank, Maybank and Tenaga Nasional. Motley Fool Singapore contributor Sudhan P owns shares in Hongkong Land.