Singapore Stock Strategy - UOB Kay Hian 2021-03-29: A Tidal Wave Of Change ~ Inclusion Of Sea Limited Into MSCI Singapore Index

Singapore Stock Strategy - UOB Kay Hian | SGinvestors.io DBS GROUP HOLDINGS LTD (SGX:D05) OVERSEA-CHINESE BANKING CORP (SGX:O39) UNITED OVERSEAS BANK LTD (SGX:U11) SINGTEL (SGX:Z74) WILMAR INTERNATIONAL LIMITED (SGX:F34)

Singapore Stock Strategy - A Tidal Wave Of Change - Inclusion Of Sea Limited Into MSCI Singapore Index

  • In Nov 20, MSCI announced that it will allow foreign-listed shares into its MSCI Singapore index. The potential inclusion of Sea Limited into the index will see more buying of the stock, and the unfortunate ramification of funds selling out of the largest constituents: DBS (SGX:D05), OCBC (SGX:O39), UOB (SGX:U11), SingTel (SGX:Z74) and Wilmar (SGX:F34).
  • MSCI has stated that the inclusion of Sea will be in four phases spread over nine months which will somewhat minimise the impact.



Foreign listed companies now allowed into the MSCI Singapore indexes.

  • On 10 November 2020, MSCI announced that Singapore had met the Foreign Listing Materiality Requirements at the Nov 20 Semi Annual Index Review (SAIR) and thus foreign listings would be eligible for inclusion into the MSCI Singapore indexes starting from the May 21 SAIR.
  • The 3 foreign-listed stocks mentioned as potential inclusions into the MSCI Singapore indexes were US-listed Sea Limited and Maxeon Solar Tech, and Hong Kong-listed Razer.


The one stock that will cause the most disruption to MSCI Singapore Index will be Sea Ltd (SE US)

  • The one stock that will cause the most disruption will be Sea Ltd (SE US) given that its free-float adjusted market capitalisation (S$71.8b as at 25 Mar) is 40% larger than the current largest component of MSCI Singapore, namely DBS (SGX:D05) with its free-float adjusted market capitalisation of S$50.8b as at 24 Mar 21.


Gradual inclusion into MSCI Singapore, so that dislocation will be minimised.

  • On 10 Mar 21, MSCI announced that eligible foreign listings would be included into MSCI Singapore in four steps, coinciding with the index reviews starting from the May 21 index review. Specifically, eligible foreign listed securities would be initially included at 5% of its free-float adjusted market capitalisation in the May 21 SAIR rising to 25% in the Aug 21 quarterly index review (QIR), 50% at the Nov 21 SAIR and finally to full 100% at the Feb 22 QIR.
  • Note that Sea will also be included in the MSCI Asean and MSCI Asia ex-Japan indices. However, these impacts will be much less compared to MSCI Singapore.


Funds will continue to actively buy Sea.

  • In the past 12 months, Sea’s share price has risen by 356% and outperforming all index benchmarks globally. While passive funds tracking the MSCI Singapore, ASEAN and Asia ex-Japan indices will have to buy Sea, we believe that many active Asian and global emerging markets funds do not hold a position in the company, and thus will need compelling reasons not to buy, otherwise they may lose out on performance versus benchmarks.


Impact on the STI - Financials will be hit the hardest.

  • On a sector basis, financials will be hit the hardest given that the 3 Singapore banks have the largest weighting within the MSCI Singapore index at 50.2%. At current prices, DBS will witness the largest impact with its weight expected to fall around 4.7bp between the May 21 to Feb 22 review, while OCBC and UOB will decline by 3.6bp and 2.8bp respectively.
  • SingTel and Wilmar, being the fourth and fifth largest weights at present, will decline by 1.8bp and 0.9bp over the same period.
  • See summary table in report attahed below for estimated weights of each of the MSCI Index constituents after the May 21, Aug 21, Nov 21 and Feb 22 reviews.


Expect MSCI Singapore index to display higher volatility relative to STI.

  • In the past 5 years, the STI has closely tracked the performance of the MSCI Singapore index. Comparison chart available in report attached below.
  • With the impending inclusion of Sea starting in the May 21 SAIR, we believe that the performance of both indices will diverge. Specifically, we expect the MSCI Singapore index to outperform in the medium to long term relative to the STI given its exposure to e-commerce and gaming in Southeast Asia.

Why has the STI tracked the MSCI Singapore index so closely despite the fact that the former has more constituent companies?

  • Although the STI has a larger number of constituent companies, the financial sector’s weighting overshadows the other companies. In addition, those “extra” companies in the STI generally tend to be old economy and thus exhibit lower earnings and therefore share price volatility.


Current constituents of the Straits Times Index (STI) vs MSCI Singapore Index


MSCI Singapore Index The Straits Times Index (STI)
Ascendas REIT (SGX:A17U) Ascendas REIT (SGX:A17U)
CapitaLand (SGX:C31) CapitaLand (SGX:C31)
CapitaLand Integrated Commercial Trust (SGX:C38U) CapitaLand Integrated Commercial Trust (SGX:C38U)
City Developments (SGX:C09) City Developments (SGX:C09)
ComfortDelGro (SGX:C52)
Dairy Farm (SGX:D01)
DBS (SGX:D05) DBS (SGX:D05)
Genting Singapore (SGX:G13) Genting Singapore (SGX:G13)
Hongkong Land (SGX:H78)
Jardine Cycle & Carriage (SGX:C07)
Jardine Matheson (SGX:J36)
Jardine Strategic (SGX:J37)
Keppel Corp (SGX:BN4) Keppel Corp (SGX:BN4)
Keppel DC REIT (SGX:AJBU)
Mapletree Commercial Trust (SGX:N2IU) Mapletree Commercial Trust (SGX:N2IU)
Mapletree Industrial Trust (SGX:ME8U)
Mapletree Logistics Trust (SGX:M44U) Mapletree Logistics Trust (SGX:M44U)
OCBC (SGX:O39) OCBC (SGX:O39)
SATS (SGX:S58)
Sembcorp (SGX:U96)
SGX (SGX:S68) SGX (SGX:S68)
Singapore Airlines (SGX:C6L) Singapore Airlines (SGX:C6L)
SingTel (SGX:Z74) SingTel (SGX:Z74)
ST Engineering (SGX:S63) ST Engineering (SGX:S63)
Suntec REIT (SGX:T82U)
Thai Beverage (SGX:Y92)
UOB (SGX:U11) UOB (SGX:U11)
UOL Group (SGX:U14) UOL Group (SGX:U14)
Venture Corp (SGX:V03) Venture Corp (SGX:V03)
Wilmar (SGX:F34) Wilmar (SGX:F34)
Yangzijiang (SGX:BS6)






Adrian LOH UOB Kay Hian Research | Singapore Research UOB Kay Hian | https://research.uobkayhian.com/ 2021-03-29
SGX Stock Analyst Report HOLD MAINTAIN HOLD 30.300 SAME 30.300
BUY MAINTAIN BUY 14.680 SAME 14.680
NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000
BUY MAINTAIN BUY 2.840 SAME 2.840
BUY MAINTAIN BUY 6.400 SAME 6.400



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