The SGX Developed Asia ex Japan Quality Index is made up of 60 stocks listed across Singapore, Hong Kong and South Korea.
With constituents maintaining comparatively strong financials, the Index has generated more resilient long term returns than relative benchmarks. Financial metrics for Quality Factors include net profit margins, return on equity & invested capital, the degree of financial leverage and accrued income.
Singapore’s stocks within the SGX Developed Asia ex Japan Quality Index have averaged a 10% YTD total return bringing their average annualised five year returns to 8%. As inferred by their Quality Index inclusion, the stocks maintain a comparatively high return on equity.
The SGX Developed Asia ex Japan Quality Index
The SGX Developed Asia ex Japan Quality Index measures the performance of stocks in the Developed Asia ex Japan region with high exposure to the Quality factor (also referred to as the Quality-risk factor). Financial metrics for the quality factors include net profit margins, return on equity and invested capital, the degree of financial leverage and accrued income.
The SGX Developed Asia ex Japan Quality Index is made up of 60 stocks listed across Singapore, Hong Kong and South Korea. Of the 60 constituents, 21 are listed in Singapore. This is comprised of 12 STI stocks and nine non-STI stocks.
As illustrated below, the Singapore’s stocks within the SGX Developed Asia ex Japan Quality Index have averaged a 10% total return in the year thus far bringing their average annualised five year returns to 8%, while maintaining a 12 month median ROE of 13%.
SGX Developed Asia ex Japan Quality Index
|Index Weightings by Exchange||Recent Performances of SGX-listed Constituents|
Source: SGX, StockFacts, Bloomberg (Data as of 14 April 2017)
The SGX Developed Asia ex Japan Quality Index has representation across all GICS® Sectors with the exception of Healthcare. Currently the sector with the strongest representation in the Index is Consumer Discretionary with 14 of the 60 stocks representing the sector, making up 21% of the Index weights. Three of these 14 stocks are Genting Singapore PLC, Singapore Press Holdings and Jardine Cycle & Carriage.
Diversification of Stock Portfolios and Quality Stocks
Most investors diversify their stock portfolios. This can be over the different sectors that stocks operate in, the countries where stocks generate their revenue or base their assets, in addition to the different ‘style’ of stocks.
By style, investors can be referring to the size and volatility of a stock, in addition to potential value stocks, growth stocks, high dividend stocks or quality stocks. Investors that use such style criteria are also known as Smart Beta investors. Quality stocks are adjudged according to the ‘quality’ of their financial reports, including operating statements, balance sheets and cash flow statements.
When creating a stock portfolio, it is important to have a benchmark against for return comparison. For example, an investor’s portfolio may have generated a seemingly substantial annual return of 10%, yet the most relevant benchmark achieved an annual return of 20% over the same period. In this case, the 10% may actually have been less than optimal. Investors with a portfolio of Singapore stocks will often use the Straits Times Index (STI) as their benchmark. For investors with a portfolio of Asian stocks, it might be worth using the SGX Developed Asia ex Japan Quality Index as a benchmark.
Singapore contributes as many as seven of the eight Industrial stocks that make up the Index, in addition to two of the three Telco plays. The table below details the 21 Singapore constituents, sort by market capitalisation. Click on each stock to visit its profile page on SGX StockFacts.
|Name||SGX Code||Market Cap S$M||Total Return YTD %||Total Return 5 year Annual’d %||ROE %||Dvd Ind Yld %||GICS® Sector Name|
|Jardine Matheson Hldgs||J36||65,202||16.5||9.7||12.0||2.3||Industrials|
|Oversea-Chinese Banking Corp||O39||40,487||8.5||6.1||10.0||3.7||Financials|
|Jardine Cycle & Carriage||C07||18,031||10.6||2.9||12.9||2.3||Consumer Discretionary|
|Genting Singapore||G13||13,167||21.0||-7.1||3.7||2.8||Consumer Discretionary|
|Singapore Technologies Engineering||S63||11,686||16.1||7.9||22.5||4.0||Industrials|
|Singapore Press Hldgs||T39||5,533||-2.0||3.8||6.7||4.1||Consumer Discretionary|
|Yanlord Land Group||Z25||3,738||46.2||10.3||13.0||2.3||Real Estate|
|Venture Corp||V03||3,287||18.3||13.6||9.4||4.3||Information Technology|
|First Resources||EB5||2,915||-3.2||0.3||13.4||1.6||Consumer Staples|
|Silverlake Axis||5CP||1,495||7.9||19.6||71.3||5.1||Information Technology|
|Sheng Siong Group||OV8||1,489||4.8||20.7||25.2||3.8||Consumer Staples|
|China Aviation Oil (Singapore) Corp||G92||1,457||20.4||14.2||14.3||2.7||Energy|
|SIIC Environment Hldgs||BHK||1,196||-9.4||11.7||7.9||N/A||Utilities|
Source: SGX, Bloomberg & SGX StockFacts (data as of 14 April 2017)
** Shareholders’ equity at the listed company level is higher than the group level due to the adoption of merger accounting in July 2002, when the shares of cable TV provider, SCV, were acquired and consolidated into the StarHub Group.
Constituents of the SGX Developed Asia ex Japan Quality Index are weighted by the adjusted free float market capitalisation. A constituent with an index weight above 15% will have its weight capped at 15% as at each index rebalance date.
SGX conducted an exhaustive process to identify the necessary factor components that are truly representative of Quality in Asian markets, fully leveraging the breadth and depth of S&P Global Market Intelligence’s Alpha Factor Library. For more information on the Index click here.
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