Should You Buy Into Straits Times Index During A Crisis?

At volatile times like this whereby the world wide stock market crashes multiple times within a month, it just confuses investors like me on which company to buy into given that we have limited cash in our war chest to deploy. Every stock or company that is listed looks attractive now.

During the Lehman Brothers financial crisis in the year 2008, I have bought STI ETF that tracks the Straits Times Index (STI) at 2,500 level. At that period of time, the Straits Times Index fell as low as 1,594 in the year 2009. When the economy starts recovering, I sold off STI ETF when the Straits Times Index (STI) was at 2,600 for fear that it will plunge again. I was an inexperienced investor at that point in time. The Straits Times Index (STI) recovered to reach above 3,500 level.

We all know that the stock market has crashed. At the current COVID-19 situation, the Straits Times Index closed at 2,410.74 on Friday, 20th March 2020.

Should I buy into the Straits Times Index again?

Straits Times Index (STI) Constituent

The Straits Times Index (STI) comprises of the largest 30 companies in terms of market capitalisation. Below are the list of companies and their weightage in the Straits Times Index (STI).

Straits Times Index (STI) Constituent Weightage (%)
DBS Group Holdings Ltd 14.8%
OCBC Bank 11.1%
UOB Bank 10.0%
Singtel 8.3%
Jardine Matheson 6.4%
Keppel Corporation 4.0%
Singapore Exchange Limited 3.9%
Capitaland Limited 3.7%
Ascendas REIT 3.1%
Jardine Strategic 2.8%
HongKong Land 2.6%
Wilmar International 2.5%
Capitaland Commercial Trust 2.3%
Mapletree Commercial Trust 2.2%
Capitaland Trust 2.0%
Singapore Tech Engineering 2.0%
Venture Corporation 1.7%
Thai Beverage 1.7%
UOL Group Limited 1.7%
Mapletree Logistics Trust 1.7%
Genting Singapore 1.5%
Singapore Airlines 1.5%
City Developments 1.3%
ComfortDelgro 1.3%
Singapore Press Holdings 1.2%
Yangzijiang 1.1%
SATS 1.1%
Sembcorp Industries 0.9%
Jardine Cycle and Carriage 0.9%
Dairy Farm International 0.8%

Dividend

One of the factors that most people buy into the index is because they did not know which company to buy into. It is good for novice investors who do not know how to analyze the financials of a company. The second factor why the STI ETF is a good stock is because it pay out consistent dividends but it was deemed unattractive because of the low dividend yield when the stock market as at all time high above 3,000 levels.

The STI ETF has been consistently paying out dividends over the past 5 years.

2019 2018 2017 2016 2015
Dividend Paid (cents) 12 11.3 10.1 9.3 9.7

Now the stock market has crashed, let us take a look at the current dividend yield.

Based on FY19 dividend payout of 12 cents and STI ETF current price of S$2.43, this gives us a current dividend yield of 4.94%. Of course we must be cautious that dividends may be cut this year and thus the dividend yield may be reduced. However, when the market recovers in the long run, the dividend payout will recover.

Summary

If you do not know which stock to buy now and wants to take opportunity of the current crisis where the stock market is cheap, perhaps you can check out STI ETF.

REITs Limited Time Offer!

The Federal Reserve announced that it will cut interest rates to zero as part of its emergency measure to protect the economy from the impact caused by the COVID-19 virus. I thought that this will give the stock market a boost but it didn’t. The stock market plunged further and this makes REITs certainly a lot cheaper at ridiculous prices I have never seen before.

Below are the stocks that I currently held in my stock portfolio. With the dip in stock prices, the current dividend yield had increased which makes certain REITs very attractive. Do expect further downside and do not expect recovery that soon. For long term dividend investors, this should not be much of an issue.

I will probably wait for the stock market to hold steady at current levels before deploying more tranches of my cash.

Stock Name Total Dividends Paid (Cents) (FY19) Closing Price (18th March 2020) Current Dividend Yield (%)
OUE Commercial REIT 3.31 S$0.32 10.34%
Frasers Commercial Trust 9.60 S$1.12 8.57%
Frasers Logistics and Industrial Trust 7.00 S$0.82 8.54%
SPH REIT 5.60 S$0.74 7.57%
ComfortDelgro 9.79 S$1.55 6.32%
CapitaMall Trust 11.97 S$1.83 6.54%
Mapletree Commercial Trust 9.14 S$1.77 5.16%
Parkway Life REIT 13.19 S$2.81 4.69%
ST Engineering 15 S$3.30 4.55%

Impact of COVID-19 to Straits Time Index

We are almost one and a half months since the COVID-19 outbreak. Since the outbreak, people scrambled to wipe out surgical masks and hand sanitizers off the shelves. When the DORSCON (Disease Outbreak Response System Condition) level was raised to ORANGE, this causes some form of panic. People flocked to grocery stores to stock up their daily necessities and shopping malls became almost vacant overnight. At this moment, I am not exactly sure how hard the impact of the COVID-19 situation to retail REITs as tenants will still need to pay their rental even though business is bad. Over the weekends, I read about news that land lords are cutting their rental by almost 50% to help tenants tide over the current situation. We will probably see some DPU reduction over the next few quarters.

Below is the STI Index chart since the outbreak of the COVID-19. As you can see, the STI fell below 3,150 in early Feb but started recovering since then.

Let us look at past virus outbreaks to see what is the impact of such outbreaks to the STI.

Below is the STI chart since MERS (Middle East Respiratory Syndrome) outbreak in September 2012. There is slight downtrend from April 2013 to Feb 2014 before the STI starts picking up again. Roughly a year before the situation stabilize?

Let us look at H1N1 (Influenza A virus subtype H1N1) outbreak from April 2009 to August 2010. The swine flu doesn’t seem to have any significant impact on the STI.

I believe everyone would have heard of SARS (Severe Acute Respiratory Syndrome) which occurred in February 2003 to July 2003. The STI shows slight decline from February 2003 to May 2003 before recovering. The decline period is roughly 3 months.

Conclusion

As you can see above, it is very hard to co-relate such virus outbreak situations to the STI. As such, we should avoid timing the market but instead focus on the fundamentals of the business that we are buying into.