Seatrium, CDL, Jardine C&C mauled after being booted out of MSCI Singapore index

MARKET watchers were divided after the MSCI Equity Indexes’ May 2024 quarterly review on Wednesday (May 15) saw the removal of five heavyweight counters from the MSCI Singapore Index.

The shares of the five Singapore companies – Seatrium , City Developments Ltd (CDL), Jardine Cycle & Carriage , Mapletree Logistics Trust (MLT), and Mapletree Pan Asia Commercial Trust (MPACT) – fell on news that they would be excluded from the index, effective May 31, 2024.

MSCI reviews its indexes to reflect moves in market value of constituents, among other factors.

The quarterly index reviews are closely watched as billions of dollars invested in exchange-traded funds track MSCI indexes. The indexes are also used as a performance benchmark for fund managers.

In total, 42 securities will be added to the all-country world index, while 121 will be cut.

In the Asia-Pacific, India emerged as the biggest winner from the latest review, with 13 securities to be added and three to be excluded. China will see 10 securities added but 56 to be deleted from the index; Japan will have one new addition but 15 exclusions.

UOB Kay Hian analyst Adrian Loh said the changes to the MSCI index are overall negative for the Singapore market, as the funds that benchmark the index would have fewer stocks to choose from.

He said the new look of the index is even more concentrated on the banks, and that the strong first-quarter share performance by the local banks and Sea – the index’s major constituents – likely led to the removal of the five stocks.

He also noted that the index has only two real estate investment trusts (Reits) left – CapitaLand Integrated Trust and CapitaLand Ascendas Reit – which is in “stark contrast” to the local bourse, with its more than 25 Reit counters.

He added: “From a more top-down perspective, the management at the Singapore Exchange (SGX) clearly have their hands full and will need to come up with strategies to broaden and diversify the stock market, improve trading volume, and attract more listings.”

In the morning, Seatrium posted the steepest drop in share price by percentage, falling 11.1 per cent or S$0.20 to S$1.60 as at 10.13 am. The counter recovered slightly to trade at S$1.61 by the midday break, down S$0.19 or 10.6 per cent, after 47.6 million securities changed hands.

Seatrium eventually ended down 11.7 per cent or S$0.21 at S$1.59, with 74.5 million shares moved during trading hours.

While MLT exceeded Seatrium’s volume with 82.5 million units traded over the day, the counter inched down only S$0.05 or 3.7 per cent to close at S$1.31. According to ShareInvestor data, two married deals took place in early trade – at 9.15 am and 9.59 am – at S$1.315 apiece in volumes of 500,000 and 700,000 units, respectively.

Units of MPACT ended down 1.6 per cent or S$0.02 at S$1.22, while Jardine Cycle & Carriage shares finished 4.3 per cent or S$1.21 lower at S$26.81.

Shares of property giant CDL shed S$0.25 or 4.2 per cent to S$5.68. A married deal was recorded before the opening bell, with 100 shares transacted at the pre-open at S$5.93 apiece.

CDL shares closed at S$5.80, after having slid 2.2 per cent or S$0.13.

Shekhar Jaiswal, head of equity research at RHB Singapore, said funds that mirror or use the MSCI as a benchmark would undergo rebalancing, and that has negatively impacted the share prices of the five stocks.

He reckons the “dust should settle once the rebalancing is done”.

“It is a non-event from a fundamental perspective, as nothing has changed in terms of each company’s earnings outlook.”

SGX market strategist Geoff Howie said that counters with higher beta – or volatility – such as Seatrium appeared to be among the most affected by the announcement on Wednesday.

However, he downplayed the potential impact of the exclusion from the index over the longer term.

“Fund managers have a number of factors that influence their allocation,” he told The Business Times. “For instance, the trio of banks saw S$200 million of net institutional fund outflow in Q1 2024, which has been followed by S$700 million net institutional fund inflow since. These flows were more associated with revised economic outlooks, financial reporting and performances rather than any index developments per se.”

Howie also pointed to the example of Venture Corporation, which was omitted from the MSCI index at the end of August 2023. “Since then, Venture has booked close to S$100 million of net institutional fund inflow,” he said.