UOB Kay Hian analyst Adrian Loh and the Singapore Research team say they expect the financial sector to be hit the hardest upon the inclusion of foreign-listed shares in the MSCI Singapore Index.

MSCI, on Nov 10, 2020, announced that Singapore had met the Foreign Listing Materiality Requirements at the November 2020 Semi Annual Index Review (SAIR). As such, foreign listings would be eligible to be included in the MSCI Singapore indexes starting from the May 2021 SAIR.

The three foreign-listed stocks that were mentioned as potential inclusions were US-listed Sea Limited and Maxeon Solar Tech, and Hong Kong-listed Razer.

The way Loh sees it, Sea may potentially cause the most disruption to the index, given that its free-float adjusted market capitalization of $71.8 billion as at March 25, is 40% larger than DBS’s market capitalization of $50.8 billion as at March 24. DBS is currently the largest component in the MSCI Singapore index.

That said, the inclusion of foreign-listed shares in MSCI Singapore will be “gradual” to minimize dislocation.


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On March 10, eligible foreign listings will be included into the index over four steps, coinciding with the index reviews starting from the May 2021 index review. The approach also means that it would take a longer time for the impact of the inclusions to be felt.

Listings will start with 5% of its free-float adjusted market capitalisation in the May 2021 SAIR rising to 25% in the Aug 2021 quarterly index review (QIR), 50% at the Nov 21 SAIR and finally to full 100% at the Feb 2022 QIR.

Loh notes that Sea will also be included in the MSCI Asean and MSCI Asia ex-Japan indices, though it will have less of an impact as compared to the Singapore index.

“On a sector basis, financials will be hit the hardest given that the three Singapore banks have the largest weighting within the MSCI Singapore index at 50.2%,” writes Loh in a March 29 report.

“At current prices, DBS will witness the largest impact with its weight expected to fall around 4.7 basis points (bp) between the May 2021 to Feb 2022 review, while OCBC and UOB will decline by 3.6bp and 2.8bp respectively.”

“Singtel and Wilmar, being the fourth and fifth largest weights at present, will decline by 1.8bp and 0.9bp over the same period,” Loh adds.

To this end, Loh expects the MSCI Singapore index to subsequently display higher volatility compared to the Straits Times Index (STI), which has so far closely tracked the performance of the MSCI Singapore Index.

“With the impending inclusion of Sea starting in the May 2021 SAIR, we believe that the performance of both indices will diverge. Specifically, we expect the MSCI Singapore index to outperform in the medium to long term relative to the STI given its exposure to e-commerce and gaming in Southeast Asia,” writes Loh.

On this, Loh expects funds to continue to actively buy into Sea.

“In the past 12 months, Sea’s share price has risen by 356% and outperforming all index benchmarks globally.”


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“While passive funds tracking the MSCI Singapore, ASEAN and Asia ex-Japan indices will have to buy Sea, we believe that many active Asian and global emerging markets funds do not hold a position in the company, and thus will need compelling reasons not to buy, otherwise they may lose out on performance versus benchmarks,” he says.

Shares in Sea closed US$6.58 higher or 3.3% up at US$209.24 ($281.38) on March 26.

As at 11.36am, the STI is trading 21.33 points higher or 0.68% up at 3,179.28 points.