STI component stocks to be cut to 30 in big revamp - Jun 06, 2007 (ST)

BackJun 06, 2007

The Straits Times / The Business Times News On SPH

STI component stocks to be cut to 30 in big revamp

Makeover includes launch of 18 new indexes to track different sectors.

By Goh Eng Yeow
Jun 06, 2007
The Straits Times

THE 40-year-old Straits Times Index (STI) of leading companies listed on the local stock market is getting its first major revamp in nine years.

Come September, a new STI will be unveiled, with the number of component stocks to be cut from 49 to 30.

Cutting the number of component stocks will make the STI a 'blue-chip' index of Singapore's largest listed stocks and ensure that it continues to be the Singapore market's key barometer for both local and international investors.

The STI's makeover will also be accompanied by the launch of a family of 18 new indexes known as the FTSE ST Indices.

The indexes will track and analyse different market sectors such as China stocks, health care, oil and gas, and financial firms.

Like the revamped STI, the 18 indexes will be calculated using internationally recognised methodology by FTSE, and be reviewed twice a year.

The revamp will be jointly undertaken by Singapore Press Holdings (SPH), the Singapore Exchange (SGX) and the UK-based FTSE Group, which signed a cooperation agreement yesterday.

The changes announced yesterday usher in a host of benefits for both investors and listed companies, said the three partners at a joint press briefing yesterday.

Dropping about 20 stocks from the STI will not alter the representativeness of the Singapore market significantly, they noted. That's because the smallest 20 stocks in the existing STI represent only about 10 per cent of the total market value of index stocks.

A slimmer 30-stock STI will be more appealing to international fund managers who often have to buy all the underlying stocks in an index in order to create investment products linked to its movements.

This means that retail investors can look forward to more STI-linked investments in future, they added.

At the same time, the new family of 18 other indexes also benefit local investors by giving a clearer view of how different sectors of the Singapore market are performing, aiding them in their investment decisions.

SGX added yesterday that companies also stand to gain from the changes because the number of companies included in market indexes will rise from about 50 to more than 200.

Index component stocks can expect higher visibility and popularity among international investors, it said.

Commenting on the changes, Mr Wong Kok Fai, the vice-president of equity structured solutions at Merrill Lynch, said: 'This is a positive step for the market. What we hope to see in the new STI are stocks which are actively traded and widely followed by fund managers.'

To make sure that the transition to the revamped STI is smooth, SPH emphasised that there will be no change to the name or numerical value of the STI.

And to give investors plenty of time to familiarise themselves with the changes, test values of the new STI will be rolled out in September on special SPH and FTSE websites. They will run in tandem with the existing STI till December, when the market will 'cross over' to the new STI.

Test values for the other new indexes will also be available on the websites from October, before they are implemented in December.

The STI was last revamped in 1998, when it was switched from a price-weighted to a value-weighted index, covering all major stock market sectors, rather than just industrial companies.

Mr Alan Chan, SPH's chief executive, said: 'We are pleased that our partnership with SGX and FTSE will secure the position of the Straits Times Index as the market's main benchmark index and also will create a wider range of investable opportunities in the Singapore market.'