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Ex-banker voices concerns over REITs dominance in STI, calls for diversification

Ex-banker Chris Kuan highlights worries over the STI’s REIT dominance, contends that Singapore faces challenges in fostering substantial local companies or attracting listings beyond the real estate sector.



Former banker Chris Kuan has expressed concerns about the excessive presence of Real Estate Investment Trusts (REITs) in the Straits Times Index (STI).

The substantial concentration of the index within a single sector, particularly one reliant on rent-based revenues, raises concerns for Kuan, who perceives this as a less favourable indicator.

To address this issue, he recommends that SGX, banks, and asset managers explore the possibility of diversifying the range of investment trusts beyond REITs.

DollarsAndSense’s insights into STI “reserve list”

Singapore’s benchmark stock market index, the STI, comprises 30 companies, encompassing familiar names for many Singaporeans.

This includes the national flag carrier, the three local banks (DBS, OCBC, and UOB), Singapore Airlines, SingTel, property company CapitaLand Investment, engineering conglomerate Singapore Technologies Engineering, and more.

On Sunday (25 February), DollarsAndSense, a regional digital publisher providing insights on market information and financial matters, published an article discussing the five stocks on the STI’s “reserve list.”

The article suggested that these stocks have the potential to replace any of the existing 30 STI companies if they become ineligible.

As of December 2023, the reserve list includes:

  1. CapitaLand Ascott Trust (SGX: HMN)
  2. Frasers Centrepoint Trust (SGX: J69U)
  3. Golden Agri-Resources (SGX: E5H)
  4. Keppel DC REIT (SGX: AJBU)
  5. Suntec REIT (SGX: T82U)

“STI is already REIT-heavy”

Chris Kuan, a retired banker currently based in Japan, expressed concerns about the composition of the “reserve list.”

Notably, he pointed out that four out of the five stocks are Real Estate Investment Trusts (REITs).

He noted that the STI is already REIT-heavy, and having a significant portion of the index in a single sector, especially one generating rent-based revenues, is not a positive sign.

This concentration of real estate companies within the STI, including CapitaLandInvest, CapLand Ascendas REIT, CapLand IntCom T, CityDev, Frasers L&C Tr, HongkongLand USD, UOL, Mapletree PanAsia Com Tr, Mapletree Log Tr, Mapletree Ind Tr.

Mr Kuan pointed out that the overrepresentation of real estate companies in the STI highlights a fundamental issue with SGX.

He argued that Singapore struggles to produce large local companies or attract listings beyond real estate firms.

This lack of diversification may pose challenges to the overall health of the stock market.

“Singapore is unable to produce big enough local companies or attract listings other than real estate companies because other than the 5 REITS, there are also 4 other real estate companies., i.e. 9 out of 30 from a single sector that is generating basically rent-based revenues. ”

Mr Kuan also suggested that the government is playing a significant role in the situation by heavily relying on capital receipts from land sales.

“Overall it is a bad look for any stock market whose market cap comprises so much real estate. ”

Mr Kuan partly attributed the issue to the preferences of Singaporean investors, particularly their inclination toward dividend-yielding stocks.

This preference contributes to the dominance of Real Estate Investment Trusts (REITs) in the market.

He suggested that SGX, banks, and asset managers should consider broadening the range of investment trusts beyond REITs.

He recommended exploring trusts in renewable energy generation, infrastructure, debt, and equity, holding assets in Asia and/or globally distributing net income, similar to REITs.

Mr Kuan criticized SGX for not adequately diversifying the investment trust universe and, instead, opting for “fashionable shot in the dark” ventures like Special Purpose Acquisition Companies (SPACs), which he suggests did not end well.

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Looking at the list, there are at least 90% of the companies in STI are Temasick related

STI is dominated by Govt-controlled or Govt-influenced companies. What are the industries that the ruling government has a high degree of control over? The No.1 industry is Real Estate. Why? Who controls all of the land? The ruling government. Who is responsible for approving development projects? The ruling government. Who can determine what sort of projects are allowed on a particular plot of land? The ruling government. Who plans the placement of all amenities and transportation? The ruling government. Thus, rent-seeking has become the number one industry for the ruling government and their cronies. The issue is that property bubbles… Read more »

Voters here are stuck and do not realise that there is a very big
ocean beyond Changi, Pasir Panjang & JB

Brokerage houses here charge high fees for stocks outside of Singapore
There is foreign currency to take into account and also taxes from other countries.
In some cases, these can negate any gains.

Looking for income ( dividends) is almost a must.
Salaries and job security is very insecure.

Growth stocks..??
Wait till PAP falls..

I wonder if Mr Kuan can write a piece on the state of affairs of SGX over last few years – to me the SGX operated securities market in SG will never never never EVER AGAIN produce another Peter Lim (with ntg to disrespect his stock pickings, winnings prowess), NOT EVEN HALF of a Mr Peter Lim.

The civil servants in the current EDB and other govt agencies tasked with supporting our SMEs are not up to the mark/work. They are mostly at best competent administrators. You need mavericks to have breakthroughs.