Straits Times Index (STI)

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Advait Pandey

The Straits Times Index (also called the STI) is the benchmark index for the Singapore Exchange. It covers 30 companies which are deemed representative of the Singapore market. The Singapore Exchange works with the UK Based Financial Times Stock Exchange 100 Index (UKX-LN) in order to maintain the FTSE ST Index Series. ^[1]

Weighting and Calculations

The STI was evolved as a market capitalization weighted index. It involves the total market capitalization of the companies weighted by their effect on the index, so the larger stocks would make more of a difference to the index as compared to a smaller market cap company. The basic formula for any index is (be it capitalization weighted or any other stock index)^[2]:

• Index level= Σ(Price of stock* Number of shares)*Free float factor/ Index Divisor.

The Free float Adjustment factor represents the proportion of shares that is free floated as a percentage of issued shares and then its rounded up to the nearest mulitple of 5% for calculation purposes. To find the free-float capitalization of a company, first find its market cap (number of outstanding shares x share price) then multiply its free-float factor. The free-float method, therefore, does not include restricted stocks, such as those held by company insiders.

While one might track this portfolio’s value in dollar terms, it would probably be an unwieldy number – for example, the S&P 500 market value is roughly $11.8 trillion. Rather than deal with ten or more digits, the figure is scaled to a more easily handled number, currently around 1250. Dividing the portfolio market value by a factor, usually called the Index divisor, does the scaling.

Continuity in index values is maintained by adjusting the divisor for all changes in the constituents’ share capital after the base date. This includes additions and deletions to the index, rights issues, share buybacks and issuances, and spin-offs. The divisor’s time series is, in effect, a chronological summary of all changes affecting the base capital of the index. The divisor is adjusted such that the index value at an instant just prior to a change in base capital equals the index value at an instant immediately following that change^[3].

Composition

Eligibility

For a security to be eligible for the Straits Times Index^[4]:

• All classes of the ordinary shares in issue the exchange are eligible for inclusion in the STI.
• Convertible preference shares and loan stocks are excluded until converted. Companies whose business is that of holding equity and other investments (e.g. Investment Trusts).
• Free float restrictions apply to all stocks, but the stock has to have at least 15% of the shares being traded on the exchange at any given time.
• The securities must have a turnover of at least 0.05% of their shares in the market (after the application of any kind of weighting) based on a median daily trade per month in ten of the twelve months of the year.

Sector Breakdown

^[5]

List of companies

List of companies on the Straits Times Index as on 23rd October 2008^[6]

References

1. ↑ FTSE ST Index Series Rules
2. ↑ Capitalization method methodology
3. ↑ Capitalization Weighted Description
4. ↑ FTSE STI Rules
5. ↑ STI Factsheet
6. ↑ STI constiuents