New STI 2008

It was announced that STI component stocks would be changed next year 2008. From the 48 stocks trim to 30 stocks. By then, it would become a big cap index. SIA Eng, Wilmar, Yangzijiang, Yanlord would be added to STI while some of the stocks relegated to mid cap index or being removed.

The implication for those new addition is the share price would likely go up. This is without consider the company specific news which could affect the share price. The fundamental argument is very simple. Once the stock is added to the index, those index fund would have to buy it, and push up the share price. Another possibility is once the stock is added to STI, it would be more prominent to the institutional investor.

Of the 4 new additions, Yanlord looks most interesting to me. It has appreciated a lot this year. At the current valuation, it would be quite pricey. However, in the long run, it is like betting China consumer would want to buy a house. The demand is definitely there. It is better to wait on the sideline and collect the share, if a meaningful correction happens.