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SPH booted out of the STI (Straits Times)

Jun 7, 2020

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SPH dropping out of STI shows how yield-driven S’pore stock market is, say analysts

SINGAPORE — The replacement of Singapore Press Holdings (SPH) with Mapletree Industrial Trust on the Straits Times Index (STI) underlines how the Singapore stock market is very much yield-driven, a reflection of investor sentiment here, analysts said.

They also said that the benchmark index for the stock market here is made up of more traditional companies, unlike other indices such as the Nasdaq or S&P 500 in the United States, which have more technology or new-economy companies, known as growth stocks, as its constituents.

While this aspect may appeal to investors here, analysts said it also means that the market here is less diversified.

Stocks that pay out dividends, such as real estatement investment trusts (Reits), dominate the STI and they have outperformed other asset classes on the index, including SPH and also telecommunication company stocks.

Mr Terence Wong, founder of fund management firm Azure Capital, said that other dividend-heavy counters include the three Singapore banks, as well as telco Singtel.

On Thursday (June 4), FTSE Russell, the administrator of the benchmark index of the Singapore stock market, announced that Mapletree Industrial Trust will replace media company SPH on the STI from June 22, becoming the sixth Reit to become a component stock.

The STI tracks 30 of the largest companies listed on the mainboard of the Singapore Exchange (SGX), ranked by market capitalisation.

Analysts said that this would be the first time SPH is removed from the index. When it first started trading in 1998, the STI was constructed by a consultant, SGX and SPH, the publisher of the national daily, The Straits Times. The index was revamped and relaunched in 2008 as part of a new partnership between SGX, SPH and FTSE Russell, and is now jointly calculated by them.

The replacement of SPH in the index came about after the quarterly review, where index administrators would rank eligible listed companies according to their market capitalisation and see how much they have dropped or increased before deciding whether a change is necessary.

If a change is deemed necessary, a component stock in the STI will be replaced with one in a “reserve list”, which comprises the five highest ranking companies outside of the index by market capitalisation.

The five companies making up the reserve list for the next September review are also dominated by Reits.

Ms Ngoh Yi Sin, equity researcher at financial services firm CGS-CIMB Securities, said: “With Mapletree Industrial Trust as a replacement, the reserve list being dominated by Reits, and STI being more weighted in financials, it indicates that the Singapore market will continue to see more interest in Reits, but is also less diversified and lacks sizeable growth stocks, as compared to other indices globally.”

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While the purpose of having a benchmark index is to make sure it is representative of the economy, Mr Wong of Azure Capital said that it may not be so for the STI.

He said that there are growth companies listed on SGX as well, but these have fallen off the radar as they are not large enough to make it to the index. As Singapore increasingly positions itself as pivoting to a new economy, this may not bode well for overseas investors who gravitate towards these growth stocks.

Mr Jack Wang, a partner at a fund management company, said that companies that are part of the benchmark index tend to be seen as being credible and is where global fund managers would look to when deciding to invest in Singapore.


The removal of SPH from the STI could see some fund managers reduce their investments in the counter or exit from it altogether, which would reduce its liquidity in the market and cause its share price to fall.

At the end of trading on Friday, SPH’s share price fell 0.73 per cent, closing at S$1.36.

A dividend paymaster in the past, SPH has now fallen out of favour with investors, Ms Ngoh said.

“We think it shows that investors believe that its media business remains disrupted, and transformation and diversification efforts previously are not bearing fruit and showing in its fundamentals,” she added.

SPH’s media business has seen its revenue decline, as print advertisement and circulation of its newspapers have dropped in the last few years.