A chance to apply textbook theory to the real world?

Golden Agri-Resources and Jardine Matheson Holdings – The first review of the 30-stock Straits Times Index (STI) since its relaunch in January this year has resulted in the entry of two new components - Golden Agri-Resources and Jardine Matheson Holdings - to replace Thai Beverage PCL and Yangzijiang Shipbuilding Holdings. The replacement takes effect on Sept 22. The STI comprises the top 30 mainboard companies selected by full market capitalisation. On the STI reserve list - to be used in between index reviews - are STX Pan Ocean Co, ComfortDelgro Corp, Ascendas Real Estate Investment Trust, Keppel Telecommunications & Transportation and SMRT Corp. Reserve lists are created at each half-yearly review and contain the next five companies ranked in order of market capitalisation below the STI. In the event of corporate actions or mergers which impact the index between reviews, companies in the reserve list will be included in the STI to replace any component stocks that may be excluded as a result of the corporate actions or mergers. The next review date is March 12 next year.

With the change in the composition of the Straits Times Index, ETFs or fund managers that attempt to track the returns of the STI will have to rebalance their portfolio, by buying Golden Agri and Jardine Matheson, while selling Yangzijiang and Thai Beverage. Given that the date set for the change is Sep 22, the change might not have been effected yet. Hence expect some upside to the stocks added into the STI, while there will be selling pressure on the stocks removed from the STI.