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The Straits Times Index is home to 30 of Singapore’s largest companies.
As such, the index is widely regarded as the barometer of the Singapore stock market.
While there are 30 companies in total, the largest among the CTI components has the most influence on the index compared to others.
Let’s take a look at what the 10 most important blue chips are.
| Company | Ticker symbol | Industry classification benchmark
(ICB) Subsector |
Index weight |
| DBS Group holdings | D05 | Banks | 15.3 percent |
| Overseas Banking Corporation-China | O39 | Banks | 12.4 percent |
| United Overseas Bank | U11 | Banks | 10.5 percent |
| Singapore Telecommunications | Z74 | Mobile telecommunications | 6.8 percent |
| Jardine Matheson Holdings | J36 | Diversified industries | 4.9 percent |
| up to REIT | A17U | Industrial and office REITs | 4.1 percent |
| Wilmar International Limited | F34 | Food products | 4.0 percent |
| Singapore Stock Exchange | S68 | Investment services | 3.2 percent |
| CapitaLand | C31 | Real estate development and ownership | 2.9 percent |
| Keppel Corporation | BN4 | Petroleum equipment and services | 3.5 percent |
Source: FTSE ST Index series fact sheet, as of September 30, 2020
In its current form, the top 10 companies in the Singapore index account for two-thirds of the index’s weight, as shown in the table below.
In fact, Singapore’s top three banks – DBS Group Holdings Ltd, Oversea-Chinese Banking Corp. Limited and United Overseas Bank Ltd – account for a whopping 38.2 percent of the STI.
If you add the next two largest companies, namely Singapore Telecommunications Limited and Jardine Matheson Holdings, the top five companies would account for half the weight of the index.
Blue chips, defined
Due to their size, STI’s component stocks are often referred to as blue chips.
Frontline companies are generally defined as large, well-capitalized companies with a long operating history and a distinctive brand.
These companies are typically market leaders in their respective industries and have a dominant competitive advantage over smaller competitors.
When buying top-of-the-line companies, the implication is that you should be able to sleep well, as they are supposed to offer stability and certainty.
However, recent events have shown that bigger is not necessarily better.
Dividends in crisis
The Covid-19 pandemic has exposed the weaknesses of some of these prestigious companies.
[[nid:501443]]For example, Singtel shares plunged to a 12-year low in September amid lower reported earnings and earnings in its latest quarter. The drop follows the telecommunications company’s decision to cut its final dividend from $ 0.107 to $ 0.0545 in May.
Similarly, our three local banks have reduced their dividends after being asked by the Monetary Authority of Singapore (MAS) to limit their dividend payments for this year to a maximum of 60 percent of the total dividend per share for fiscal year 2019. .
In a study we recently conducted, we found that two out of three dividend-paying blue chips have reduced their dividends since then.
Not all is pessimism. At the same time, we have also found four blue chips that have managed to increase their dividends amid all the dividend sadness.
This article was first published on The Smart Investor. Disclosure: Chin Hui Leong owns shares in DBS Group, OCBC, UOB, and Singapore Exchange.
