Assembling its constituents based on market-cap and liquidity makes the index much more stable and consistent, albeit at the cost of some dynamism, since it means that Singapore’s banks and government-linked companies are likely to take up most of the STI’s 30 slots.
It would be easy to think that the 60-year-old Straits Times Index (STI) is as set in its ways as its age suggests. More than a third of the blue-chip index’s constituents have remained unchanged since 1998, when it dropped its former name, the Straits Times Industrials Index (STII). Over 50% of the STI’s market weight comes from Singapore’s big three banks, DBS Group Holdings, Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB).
The rigid membership of the STI is by design, given its nature as a market-cap-weighted index. As the STII, the index was price-weighted and, as such, was easily prone to price swings if traders issued buy orders at high target prices before market close.
