⁠Seatrium and Mapletree Logistics Trust shares hit by index removal. What's next?

What happened?

There were a few stocks in the Singapore market which fell sharply today.

For example, Seatrium’s share price declined by 12% to close at $1.59 on 15 May 2024.

The decline in Seatrium’s share price came after it was announced that the stock will be removed from the MSCI Singapore index. This follows Seatrium’s recent share price volatility with its share consolidation.

Apart from Seatrium, there are four other Singapore-listed stocks that will be removed from the MSCI Singapore Index. 

This would include City Developments, Jardine C&C, Mapletree Logistics Trust, and Mapletree Pan Asia Commercial REIT. 

These stocks fell to varying degrees, with Jardine C&C declining by 4.3%, Mapletree Logistics Trust declining by 3.7%, City Developments declining by 2.2% and Mapletree Pan Asia Commercial Trust declining by 1.6%. 

Let us find out more about the changes to the MSCI Singapore Index, and how these changes will impact the stocks.

What is the MSCI Singapore Index?

The MSCI Singapore Index is a benchmark for the Singapore market and measures the performance of large and mid-cap segments of the Singapore market. 

As at 30 April 2024, there were 21 constituents in the MSCI Singapore Index. With the removal of the five stocks, the number of constituents on this index will be reduced to 16.

There are no new stocks that will be added to the MSCI Singapore Index.

What this means that the weighting of the remaining 16 stocks in the MSCI Singapore Index will go up. 

The changes to the MSCI Singapore Index will take place on 1 June 2024.

The review to the MSCI indices are done on a quarterly basis. 

The last major change to the MSCI SIngapore Index was when Sea Limited replaced Suntec REIT into the MSCI SIngapore Index in 2021. 

What we have observed is that these 5 stocks have fallen sharply since the last review.

For example, the share price of Mapletree Logistics Trust recently fell to reach a 1-year low.

⁠How is the MSCI Singapore Index different from the Straits Times Index?

Retail investors in Singapore may be more familiar with the Straits Times Index, which is also a benchmark of the Singapore market comprising the 30 largest and top-performing companies listed on the Singapore Exchange. 

There are a few significant differences between the MSCI Singapore Index and the Straits Times Index. 

#1 – Number of constituents

The number of constituents in the Straits Times Index is fixed at 30. This means that there will always be 30 stocks in the Straits Times Index at any point in time.

However, there is no fixed number of constituents in the MSCI Singapore Index. As we have seen, the number of constituents in the MSCI Singapore Index will fall to 16 from 21 with the latest changes.

In fact, Seatrium, Mapletree Logistics Trust, Mapletree Pan Asia Commercial Trust, City Developments and Jardine Cycle & Carriage remain constituents of the STI even though they will be removed from the MSCI Singapore Index. 

#2 – Constituent list

For a stock to be in the STI, it needs to trade on the Singapore Exchange even if its primary source of business may not be in Singapore. 

This is why Thai Beverage is in the STI, even though it derives a significant portion of its revenue from Thailand. 

However, stocks in MSCI Singapore need not be listed on the Singapore Exchange and can be listed in overseas exchanges. However, they will need to derive a significant portion of their earnings in Singapore.

For example, Sea Limited and Grab Holdings are both in MSCI Singapore as of 30th April 2024. However, these two technology companies are not in the STI as they are listed in the US. 

You can find a full list of stocks in the STI here. 

How did other stocks perform in previous index removal?

To understand how the share prices of stocks can be impacted by index changes, we can take a look a look at Suntec REIT's performance when it was removed from the MSCI Singapore index in 2021. 

When it was announced that Suntec REIT will be removed from the MSCI Singapore Index on 12 May, its share price fell from $1.49 to $1.41 over two days.

The stock rebounded in the following weeks, but saw another round of selldown to huge volumes on 27 May, the day that it was removed from the MSCI Singapore Index. 

Thereafter, Suntec REIT's share price bounced and was back to its share price prior to the MSCI Singapore removal by June. 

What would Beansprout do?

The share prices of these five stocks reacted negatively to the news. 

Outside of a company's fundamentals, there are factors that may influence the performance of the stock, in which the fund flows arising from index inclusion and exclusion may be one of them.

For example, passive funds such as ETFs that track the MSCI Singapore Index will dispose their stakes in the five stocks with the index removal to be aligned with the index composition. 

Actively-managed funds with performance measured against the MSCI Singapore Index may also cut their stakes in these stocks to maintain their portfolio compositions relative to the benchmark. 

As these 5 stocks remain constituents of the STI, we saw the STI declining by 0.7% on 15 May, underperforming regional indices. 

For example, the Hang Seng Index saw a slight decline of 0.22%, while the Nikkei 225 rose by 0.08%. 

However, it is worth noting that the removal from the index may not directly affect the fundamentals of these companies. 

As we have seen in performance of Suntec REIT's removal from the index in 2021, such index changes typically do not have a significant long-term impact to the company's share price. 

Hence, we would still take into consideration the investment merits and valuation of these stocks in deciding whether they are good options for our portfolios. 

It might be worth noting that after the share price decline today, Mapletree Logistics Trust is expected to offer a dividend yield of 6.9% 

Find out how much dividends you would have received as a shareholder of Mapletree Logistics Trust in the past 12 months with the calculator below.  

Mapletree Pan Asia Commercial Trust is expected to offer a dividend yield of 7.4% after the share price decline today.

Find out how much dividends you would have received as a shareholder of Mapletree Pan Asia Commercial Trust in the past 12 months with the calculator below.  

Click here to read our recent analysis of Mapletree Logistics Trust.

Click here to read our recent analysis of Mapletree Pan Asia Commercial Trust

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Related links:

• Mapletree Logistics Trust share price and analysis
• Mapletree Logistics Trust dividend history
• Mapletree Pan Asia Commercial Trust share price and analysis
• Mapletree Pan Asia Commercial Trust dividend history

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