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) ConstituentWeightage (%)
DBS Group Holdings Ltd14.8%
OCBC Bank11.1%
UOB Bank10.0%
Singtel8.3%
Jardine Matheson6.4%
Keppel Corporation4.0%
Singapore Exchange Limited3.9%
Capitaland Limited3.7%
Ascendas REIT3.1%
Jardine Strategic2.8%
HongKong Land2.6%
Wilmar International2.5%
Capitaland Commercial Trust2.3%
Mapletree Commercial Trust2.2%
Capitaland Trust2.0%
Singapore Tech Engineering2.0%
Venture Corporation1.7%
Thai Beverage1.7%
UOL Group Limited1.7%
Mapletree Logistics Trust1.7%
Genting Singapore1.5%
Singapore Airlines1.5%
City Developments1.3%
ComfortDelgro1.3%
Singapore Press Holdings1.2%
Yangzijiang1.1%
SATS1.1%
Sembcorp Industries0.9%
Jardine Cycle and Carriage0.9%
Dairy Farm International0.8%

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.

20192018201720162015
Dividend Paid (cents)1211.310.19.39.7

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.

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.

Santa Claus Rally

Have you heard of the Santa Claus Rally? The term “Santa Claus Rally” is nothing new to investors and this is something everyone is hoping for. “Santa Claus Rally” refers to the sustained increase in the stock market usually in the last week of December where Christmas Day falls into and thus this is how this phenomenon gets its name.

According to what I found, there are several theories that support this “Santa Claus Rally”

  • Increased holiday shopping during the festive season. There are many ongoing sales and events such as Black Friday sales, 12.12 sale, Christmas sale and End of Year sales. All these shopping events give the retail sector a boost.
  • Institutional investors settling their books before going for their vacation. We all know that before REITs announce their financial results, the share price will always go up if investors are expecting some good financial results. Basically, investors sentiments supported the “Santa Claus Rally”.

Let us take a look whether “Santa Claus Rally” will happen this year for Straits Times Index. Below is the chart for SPDR Straits Times Index ETF. As you can see, there is an overall uptrend since early December.

Next, lets look at the Standards and Poor 500 Index. The uptrend is more apparent. As you can see the uptrend starts in early December as well.

Do you believe in the “Santa Claus Rally”? Well, I certainly do hope there will be a nice present from Santa Claus.

Last but not least, I wish everyone lives be filled with love and happiness and may your year be filled with positive energy and good vibes.

Merry Christmas!!