What does price indicate?

FTSE Group, SGX and Singapore Press Holdings (SPH) have jointly created the FTSE ST Index Series to provide investors with a comprehensive series of indices for accessing segments of the Singapore market.

These indices include the blue-chip Straits Times Index (STI), the FTSE ST Mid Cap Index, the FTSE ST Small Cap Index, the FTSE ST Fledgling Index and the FTSE ST Catalist Index.

Two indices which might require a re-introduction are the FTSE ST Fledgling Index, which is made up of the 322 smallest capitalised active stocks on the mainboard and the FTSE ST Catalist Index. The Catalist Board caters to the needs of growth companies.

There is a relationship between the capitalisation of each of these five indices and the average prices of its constituents.

The average price of an STI stock is S$10.95, versus S$0.178 for the FTSE ST Catalist Index.

While capitalisation is, of course, a function of price and number of shares on issue, bigger stocks by market value do seem to have higher prices.

Yet, while the five indices can appear to be characterised by the average and median price of its constituents, the variation is less extreme when we come to fundamental indicators such as price to earnings (P/E), price to book value (P/B), current ratios which measures the ability to pay back short-term liabilities with short-term assets, and dividend yields.

Larger stocks do demonstrate a higher return on equity (ROE).

Smaller stocks are meanwhile currently valued at lower earnings and book value multiples.

However, stocks on the Catalist board are trading at higher multiples despite having lower profitability and lower dividend yields - as befitting a board of growth stocks.

So while stocks in Singapore come in different prices, price alone, ultimately, does not provide an indication on the business behind the stock.

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