Singapore’s Straits Times Index (SGX: ^STI) is home to 30 of the largest companies in the city-state. It’s no wonder the index is widely regarded as the market barometer for the Singapore stock market.
So, here’s the thing: while all 30 companies contribute to the index, their influence is not equal.
The weight of each component is determined by its market capitalisation.
Hence, the largest among them, shown below, has a greater impact on the index’s overall performance.
Blue chips, defined
STI index component stocks are often referred to as blue chips.
In general, blue-chip companies are seen as large, well-capitalised companies with a long operating track record and a distinctive brand name.
Due to their size, these businesses are typically market leaders in their respective industries.
To be sure, size alone is no guarantee that a company will remain in the top 10.
Two years ago, CapitaLand (SGX: C31) and Wilmar International Limited (SGX: F34) were part of the coveted list but have since dropped out.
The Big 10 blue chips
As it stands, the top 10 companies within the Singapore index account for over 75% of the index’s weightage.
In fact, Singapore’s three major banks, DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corp. Limited (SGX: O39), and United Overseas Bank Ltd (SGX: U11), account for close to 51% of the STI.
Their prominence underscores the banking industry’s importance to the Singapore economy and stock market.
Beyond the banking sector, real estate is another key industry represented in the top 10 STI stocks with the REIT duo of CapitaLand Integrated Commercial Trust (SGX: C38U) and CapitaLand Ascendas REIT (SGX: A17U) standing out.
Together with other real estate companies within the STI, the sector contributes about 16.6% of the index.
The next two largest industries represented in the STI are industrial goods and services, and telecommunications. Jardine Matheson Holdings (SGX: J36) represents the former while Singapore Telecommunications (SGX: Z74) or Singtel is sole representative of the latter.
Interest rate cut on the horizon
The era of high interest rates may be drawing to a close.
After aggressively hiking interest rates in 2022 and 2023, the US Federal Reserve (Fed) may be nearing a pivot. As the U.S. labour market shows signs of weakening, the Fed may lower interest rates later this year to stimulate economic growth.
The change could be a boon for REITs, which rely on debt, but a bane for banks which will earn less from its loans.
Other key sectors may also benefit from the change — you can read about them HERE.
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Disclosure: Chin Hui Leong owns shares in CapitaLand Integrated Commercial Trust, CapitaLand Ascendas REIT, DBS Group, Singapore Exchange, OCBC and UOB.
