Business Times - 10 Jan 2008

THE NEW STI
The evolution of STI

1970


The Straits Times Index (STI) starts life as the ST Industrials Index (STII), with 30 stocks drawn purely from the industrials sector.

1998


Sept: The Straits Times Index is launched, replacing the STII, which was criticised for failing to reflect banking, property and other stocks.

The new STI is weighted by market capitalisation, compared to the older price-weighted STII. It represents 78 per cent of the average daily traded value over a 12-month period and 61.2 per cent of total market capitalisation on the exchange. Continuing where the STII left off, it starts trading at 885.26 points.

Other changes include the introduction of nine new sectoral stock indices, replacing the five previous ones. The number of sector classifications is doubled to 12, with new sectors like electronics and transport added.

Less than a week in, the STI closes at the lowest point of what will be a nearly decade-long journey, 805.04 points, on Sept 4, as weakness in the US market and fears over the suspension of Clob trading of Malaysia shares drag the index down.

Aug: The first annual review of the STI sees 10 stocks replaced. Newly added stocks included hotel group Amara Holdings, network system integrator Datacraft Asia and electronics firm Brilliant Manufacturing.

The index is still concerned with representing the broader economy, so although generally only stocks with market value of $250 million or more are considered, the small-cap construction firm Econ International is allowed in.

Some stocks that remain familiar today were removed from the index, including Hong Leong Finance, hotel group Overseas Union Enterprises, retailer Robinson & Co, and refiner Singapore Petroleum Company.

The revised STI has 55 stocks, of which six are US dollar stocks and six Sesdaq stocks. It captures 61.2 per cent of total market turnover and 61.7 per cent of total market capitalisation.

2000

Jan: Three days into the new year, the STI soars to its highest point so far, 2,582.94, thanks to evaporating fears about the effects of the Y2K bug.

Analysts predict the index will reach 3,000 by the year-end. But this is not to be - in fact, the STI will not attain those levels until almost five years later.

June: Chartered Semiconductor Manufacturing replaces Thakral Corp on the STI, with no other changes made. A little before the switch, CSM was added to the Morgan Stanley Capital International Singapore Free Index, a benchmark for the broader Singapore stock market.

The 55 STI component stocks captured 60 per cent of the total market cap, with manufacturing accounting for 30 per cent and finance for 28 per cent of the index.

Later that month, Singapore Exchange Derivatives Trading launches STI Futures, to enable hedging and trading of the index.

Dec: The STI Review Committee invites public feedback on the composition of the STI and its selection criteria, ahead of a major review before 2001. The review is considered significant, as the next year will see STI-based Exchange Traded Funds start trading.

BT publishes a commentary asking if the STI should attempt to represent the economy or reflect contemporary trading volumes. It observes that certain component stocks, particularly in the hotels and properties sector, are illiquid and infrequently traded.

Reducing the number of component stocks, even if it led to a major shake-up, would allow an ETF to track the index more efficiently - by rough estimates, cutting down to 40 constituents, from 54, would still cover 90 per cent of the existing index.

2001

Jan: The Singapore Regional Index Fund changes its name to the Singapore Index Fund. The SRI fund was the first open-ended unit trust listed locally, and the move acknowledges the authority of the STI.

Feb: Shangri-La Hotel is removed from the STI, after Hong Kong-based parent Shangri-La Asia acquires the outstanding shares through a rights issue, citing lack of liquidity.

Sept: The STI undergoes a major review - of the 52 constituent stocks, 21 are removed and 14 new stocks added.

The new STI's 45 components account for 69 per cent of the SGX's trading activity over the year, and represent 72 per cent of the market's total capitalisation.

Analysts approve the removal of many stocks that are thinly traded, and praise the revised index for being more reflective of the market. But some lament the removal of Overseas Union Bank, a well traded stock - the bank was acquired by rival United Overseas Bank.

Meanwhile, post-Sept 11 fears of another Gulf War pull Asian markets down, along with them the STI, which sees a low of 1,241.29.

2002

April: streetTRACKS, the STI exchange-traded tracker fund, starts trading after a $32 million IPO.

With the STI dominated by moves in a few counters, BT publishes a commentary asking whether the index accurately represents the broader market, and whether it should.

BT observes that the index gains several points, even as the broader market stays relatively flat, and that the index's gains come from bounces in the share price of three local banks.

Meanwhile, heavy rotational trading goes on among small-caps and penny stocks.

June: The MSCI's weight changes of several components stocks of the STI leads to price swings as portfolio managers rebalance; later the removal of SingTel from Australia's S&P/ASX 200 index also sparks a selldown.

Critics of the Singapore market say there are only a limited number of mid to large-cap stocks to trade, and they can find better opportunities in larger, more liquid overseas markets.

Sept: In the midst of the market slowdown, a BT commentary, A Completely Marginalised Stock Market, quotes a retail broker as saying that "telephones are superfluous pieces of equipment".

A report the following month says over 80 per cent of locally listed stocks have "penny" status - worth less than 50 US cents.

Regional markets fare worse - 91 per cent of stocks in Hong Kong, 90 per cent in the Philippines, and 73 per cent in Malaysia are penny stocks.

At this point, the 45-stock STI accounts for over 80 per cent of total market value on the SGX, and a slightly smaller proportion of its daily traded value.

2003

March: Markets stayed down in 2002, with the STI rallying somewhat but failing to break past the 2,000 level. Continuing fear of the impact of the war in Iraq damp the broad market, while underperformance of the three local banks pull the STI down to 1,213.82. The only way from here is up.

Meanwhile, telecoms firm M1, property play Allgreen and China favourite People's Food are added to the STI, replacing Hotel Properties, Marco Polo and United Industrial Corp. Comfort and DelGro merge and the newly formed Comfort DelGro is also included on the index.

2004

Feb: Singapore Post, Cosco Investment, BIL International and TPV Technology are added to the STI, replacing NATSTEEL, Hotung Investment Holdings, Overseas Union Enterprise and SMRT Corp. With the new changes, the STI captures 61 per cent of average daily traded value and 69 per cent of total market value on the SGX.

Dec: BT publishes a commentary in favour of changing IPO rules that could boost the local market. At this point, it reports, 81 per cent of locally listed stocks are still penny stocks worth less than $1 per share.

Drop the penny mark to 50 cents, and the proportion is still a high 70 per cent, drop it further to 20 cents and still, 43 per cent of listed firms here qualify.

2005

March: The STI expands to 50 stocks, with seven added and two dropped.

Reflecting the introduction of Reits on the local stock exchange, Ascendas Reit and CapitaMall Trust are added to the index, along with Hyflux, Jurong Tech Industrial, the Noble Group, Singapore Petroleum and StarHub. Elec & Eltek and Singapore Land are removed.

The revised index captures 60 per cent of the average daily traded value and 75 per cent of its total market cap of firms listed on the SGX.

A BT commentary notes that although the index has recovered and is approaching a five-year high, almost three out of four Singapore stocks are still below their 2000 levels.

2006

March: United Test and Assembly Centre replaces insurer Great Eastern Holdings. With the changes, the STI captures 66 per cent of average daily traded value and 71 per cent of total market cap.

April: The STI finally rises to all-time highs, breaking past the 2,600 mark, with conglomerates like Keppel Corp and ST Engineering getting into gear.

Dec: SPH, SGX and FTSE sign an MOU to redesign the ST index and augment it with a new, more comprehensive set of indices.

2007

Feb: Thai Beverage, Suntec Reit, Olam International, Genting International, Labroy Marine and CapitaCommercial Trust are added to the STI.

Haw Par Corporation, BIL International, Dairy Farm, and TPV Technology are removed.

The index's 50 component stocks capture 51 per cent of average daily value traded and 64 per cent of stocks' total market value.

Oct: The STI hits an all-time high of 3,875.77. The STI revamp and launch of the new FTSE ST Index Series in coming months is announced.

Dec: BT publishes a commentary pointing out the thin trading in STI futures compared to futures written on the Singapore Morgan Stanley Capital International index - in October, only 22 STI futures contracts were done, compared to 3.7 million contracts on the SiMSCI.

It also notes liquidity is absent in the STI's ETF, partly due to tracking error: at one time, with the underlying index at 3,600, the ETF's bid-offer spread stood at 3,700-3,710.

2008

Jan: New-look STI with 30 component stocks and 18 other indices, including a Mid Cap, a Small Cap and an All Share index, go live.

Compiled by Matthew Phan

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