Country indexes serve as important indicators for the health of the countries’ economies. In Singapore, you would logically look to the Straits Times Index (STI) as a gauge of how well the state of the local economy is in. Likewise, other countries have their own indexes.
Country indexes often comprise of the top stocks in the country. Singapore’s STI tracks the performance of the top 30 stocks listed in the country, including Singtel, DBS Group, Ascendas REIT, Keppel Corporation and Thai Beverage amongst others. Similarly, the country indexes of other economies will be made up of strong companies in the local market.
With that in mind, let us look at how four popular country indexes performed in 2016.
1. Straits Times Index
Being Singapore’s country index, it should be no surprise that the STI plays a pivotal role in investors’ decisions here.This index is made up of the top 30 listed stocks in Singapore, which makes up about 70% of the total stock market value in Singapore. You can view the full list of its components here.
Throughout 2016, the STI remained relatively flat, closing marginally down, by 0.3%, after beginning the year at 2,889.23 and closing at 2,880.76. At the start of the year, equities market in most countries saw a sell off spurred by major uncertainties in the political landscape with UK’s Brexit referendum, a low interest rate environment and plunging crude oil prices to record lows of under US$27.
For the STI, this translated to a 2016 low of 2,532.70 in late January before rebounding to a high of 2,960.78 in April. It then saw continued volatility throughout the year. At the tail end of 2016, it was buoyed by general increases in the global stock market as a result of the US election seen as positive to growth opportunities.
At a dividend yield of close to 4.1%, the STI returns one of the highest dividend yields in Asia. Together with dividends, the STI still managed to deliver positive returns to equity holders for the year, despite the lacklustre Singapore economy which grew just 1.8% in 2016.
Investors in Singapore will continue to look to the STI for their investments as it encompasses many blue-chip companies they are most familiar with.
STI – 1 year chart
Source: Yahoo! Finance
2. Standard & Poor’s 500 (S&P 500)
The Standard & Poor’s 500, or S&P 500, represents the top 500 companies trading in the United States of America (US) and makes up close to 70% to 80% of the total stock market value in the country.
Its constituents include diverse world leading companies such as technology giants Apple and Google’s parent company, Alphabet, consumer staples Johnson & Johnson and Procter & Gamble, banks like JPMorgan Chase and Bank of America as well as a whole list of other major companies.
The S&P 500 opened 2016 on 2,038.20 and ended 9.8% higher at 2,238.83. Delivering a dividend yield of approximately 1.95%, this took the return for the S&P 500 to the low double digits for the year.
The S&P 500 saw a similar dip faced by majority of the world’s equity markets in the early part of the year, dropping to a low of 1,829.08. However, supported by the low interest rate environment and the promise of local growth following Trump’s presidency, the index saw an upward trend for the rest of the year, moving up as high as 2,271.72, before drifting slightly lower to end the year at low double digit returns. Moreover, this came despite only a 1.6% growth in the US economy, its worst since 2011.
S&P 500 – 1 year chart
Source: Yahoo! Finance
3. Hang Seng Index (HSI)
The Hang Seng Index is made up of the 50 largest companies listed on the Hong Kong’s stock market. Comprising approximately 65% of the Hong Kong stock market value, it is further divided into four business lines including finance, utilities, properties and commerce & industry.
Its components comprise finance heavyweights, HSBC, AIA and Ping An Insurance, Chinese commodity firms Sinopec and CNOOC as well as Li Ka Shing’s CK Hutchinson Holdings and leading e-commerce firm Tencent Holdings as well as many other major companies.
In 2016, it eked out slightly over 1.0% return starting at 21,782.62 in January and ending at 22,000.56 by the end of December. The HSI, mimicking the tank in global stock markets, fell to a low of 18,319.58 in early February before trending upward to a high of 24,099.70 in September.
Returns for the HSI was supplemented by over 3.4% dividend yield, one of the highest in Asia, in the year.
Source: Yahoo! Finance
4. Financial Times Stock Exchange 100 (FTSE 100)
The FTSE 100 is made up of the largest 100 listed on the London Stock Exchange. It too makes up a significant proportion, close to 80%, of all the companies listed on the exchange.
The biggest companies on the index includes HSBC and Lloyds in the financial sector, commodity heavyweights such as Royal Dutch Shell, BP, Glencore and Rio Tinto as well as the world’s largest cigarette maker British American Tobacco and leading pharmaceutical firm GlaxoSmithKline. You can view the full list here.
In 2016, the index rose close to 14.4%, opening the year at 6,242.30 and closing at 7,142.80. During the year, it briefly fell to a low of 5,537.00 before rebounding on a general upward trend for the rest of the year to end at an all-time high of 7,142.80. In addition, the FTSE 100 returns an annual dividend of 3.7%.
As seen in the chart, apart from the pressure all markets generally faced in the early part of the year, there was some added volatility near the end of June, which coincided with the Brexit referendum, when the United Kingdom voted to leave the European Union (EU). As a result of the Brexit vote, the Great Britain Pound weakened during the year, and this supported the price increases of multinational companies with strong foreign revenues.
Source: Yahoo! Finance
Why Country Indexes Are Important
It is important to know how the STI and other country indexes are performing for three main reasons.
- If you are considering making investments in other countries, one good indicator of how investments in a particular country is performing is through its country index.
- It is the easiest place to start making an investment in a country that is not entirely familiar to you. Country indexes often comprise of the top stocks in the countries and typically offer in-built diversification as the top stocks in the indexes would come from a variety of industries.
- If you are investing in individual stocks, you can use the returns of a country index as a benchmark for how your investments are performing. This means that when you conduct your annual portfolio review, you can compare it against the returns from the benchmark, which can be viewed as the market return, to check if your portfolio has over or under-performed. This information can then be used to rebalance your portfolio.
Country indexes are also reviewed regularly and amendments are made to their constituents to ensure they continue to remain relevant as reflection of how the local markets are performing as a whole. Component stocks that fall below requirements may be removed while other transactions such as mergers, new listings or delistings could mean new companies replacing older ones on the index. Each index will have their own criteria for eligibility.
These updates to the indexes protect investors’ money by ensuring that companies on the indexes are performing well as a whole and are taken out long before they get into significant trouble and affect the indexes’ returns. Similarly, companies that are more relevant to the economy and performing well may be added in to ensure investors’ portfolios are reflective of the countries’ market direction and tastes.
What are your thoughts on the country indexes? Leave us a comment below!
 DollarsAndSense article – http://dollarsandsense.sg/stock-investment-sti-etf/
 Straits Times article – http://www.businesstimes.com.sg/companies-markets/sti-dividend-yield-best-in-asia-sgx-report
 Investopedia – http://www.investopedia.com/articles/analyst/102501.asp