The recent announcement that Keppel DC Real Estate Investment Trust (REIT) will replace Jardine Cycle & Carriage (C&C) on the Straits Times Index (STI) has reignited discussion about the evolving composition of Singapore’s main stock market benchmark. While the STI is still heavily weighted toward banks (>50%), the inclusion of another REIT reflects a broader trend: investors are increasingly betting on REITs. If you would like to look at REITs, I have a recent write-up that sought to identify the qualifications of an attractive REIT in the current macro climate. Now, back to the changes in STI…
Bank-Dominated, But Real Estate is Gaining Ground
Despite recent changes, the STI remains dominated by the financial sector. The three local banking giants — DBS, OCBC, and UOB — account for more than 50% of the index’s total weightage. This concentration underscores the central role of financial institutions in Singapore’s economy and market. However, REITs have steadily gained ground as the next most significant sector within the STI.
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As of now, REITs account for 10% of the STI’s total weight. With Keppel DC REIT’s inclusion, this figure will rise, signaling a stronger foothold for the REIT sector in Singapore’s blue-chip index.
An increasingly Property-Related Index
The STI currently includes seven REITs, and with Keppel DC REIT’s addition, that number will rise to eight out of 30 constituents. For comparison, there were 6 REITs in 2020. Furthermore, when including four other property-related stocks such as City Developments and UOL Group, real estate-linked counters will make up a sizable portion of the index. Collectively, REITs and property developers will contribute approximately 14.71% of the index’s weightage.
This growing representation reflects the nature of Singapore’s economy, which is heavily influenced by real estate. With a mature REIT sector and land-scarce environment, property continues to be a dominant economic pillar and a favored investment theme. A good example for this would be exemplified by our recent article on the growth in Singapore’s construction sector. Many of them have garnered strong returns over the past year. Furthermore, many of the listed REITs in SGX provides investors with exposure to overseas properties, which further increases investor appetite for this segment.
In addition, it’s worth noting that despite the global rise of technology stocks, tech giants like Sea Group and Grab are not part of the STI. This is primarily because they are listed overseas, even though they have significant operations in Singapore. Their exclusion leaves a gap in sectoral diversification and reinforces the STI’s current skew toward financials and real estate.
Reflecting Investor Preferences and Economic Realities
The STI’s composition reflects not just corporate performance but also investor behavior and the underlying structure of Singapore’s economy. Local investors, particularly retail ones, have shown strong preference for income-generating assets such as REITs and bank stocks. These sectors offer steady dividends and are viewed as defensive investments, especially in uncertain economic times. Most Singaporean investors would likely be heavily invested in banks and REITs — a pattern mirrored by the STI itself.
This trend will likely continue. With rates falling and a drive to boost consumption, we see a possibility of REITs taking up a larger proportion of index weight in the future. Furthermore, with high valuations, squeezed net interest margins and decreasing interest rates, banks are likely to experience some form of mean reversion.
In addition to these developments, Capitaland Investment is looking to launch a China REIT with RMB 2.8 billion of assets. Link REIT is also looking to spin off non-HK, China assets in Singapore. There are increasing alternatives and options for Singaporeans to invest in high quality REITs around the world. These reflect a mix of meeting investor preferences and raising funds for expansions for their respective operations.
Conclusion
While the STI is not yet a full-fledged REIT index, the growing presence of real estate-related stocks suggests a gradual shift toward greater exposure to this sector. The index remains bank-heavy, whose market capitalisations are still many times larger than those of property-related stocks, so we won’t see REITs overtaking banks anytime soon. However, there will likely be an increasing slant towards REITs and it is reflective of both the structural realities of Singapore’s economy and the preferences of its investors. As the STI continues to evolve, it is likely to remain a barometer not just of market performance, but of the sectors that define Singapore’s economic identity.
