Tuesday, June 12, 2007

Changes to ST Index

Hi Mr Tan,

I enjoyed reading your blog and your advice, please continue! What is your opinion about the STI changes at the end of the year:

1) The number of constituent stocks will be reduced from 50 to 30. This will make the STI a blue chip index. The reduction in constituent stocks will not significantly alter the representativeness of the index, given that it is value-weighted. In fact, the smallest 20 stocks of the current STI represent only about 10 per cent of the index by market capitalisation.

(2) The STI will be calculated by FTSE according to its internationally recognised methodology for liquidity criteria and free-float adjustment. The index's constituents will also be reviewed by the three parties at regular intervals.

The FTSE ST Indices

The STI will be complemented by a new family of FTSE ST indices that will consist of 5 benchmark and 13 industry indices, including a new theme index to represent China stocks listed in Singapore.

I am looking forward to the new indices and subsequently the ETFs that may come out



Thank you for alerting me about the proposed changes. I find the changes to be more meaningful, especially as the STI will be weighted by market capitalisation. I got the impression that this was not the case in the past (but I was not sure if it had been changed already).

I am also looking forward to the change, which is to keep up to date with the latest methodology.

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