Citi Research analyst Arthur Pineda says Grab Holdings’ recent listing allows it potential to be included in key market indices. The tech group’s listing places it amongst the top 10 largest Singapore-headquartered stocks based on market capitalisation, at US$23 billion ($31.03 billion) as at the time of writing on Jan 18.
“This places the company in good footing to be included in key market indices such as MSCI Singapore which in turn raises potential concern on asset re-allocations. Weightings into Grab will need to be funded by a reduction in weightings for other legacy index names,” writes Pineda.
That said, the inclusion of Grab into such indices will likely see a minimal disruption for the existing large caps that’re already in the index, unlike the inclusion of Sea Limited in September 2021.
According to analysts in UOB Kay Hian, the financial sector in Singapore was said to see the biggest impact as Sea Limited’s weighting within the MSCI Singapore index increases to 11.0% from 2.5% previously.
“Assuming a 52% free-float, a full 100% MSCI Singapore Index Inclusion factor and no other names are deleted from the index, we estimate that Grab could take up [around] 4% weighting in the MSCI Singapore index (where it should rank 6th largest by weighting),” says Pineda, who compared it to Sea Limited’s inclusion, which initially saw pro-forma full inclusion weighting of over 30%.
“Based on our estimate, the five largest weighted Citi actively covered names, will see a manageable 0.1%-1.2% potential weightings change. As such, we do not see Grab’s inclusion as likely disruptive to other large cap plays,” he adds.
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Instead of large caps, smaller property plays such as UOL and City Development Limited (CDL) may be at risk with their potential weightings within the indices falling below 1% by end-February with the full inclusion of Sea Limited.
“[This is] even before we consider the potential impact of a Grab inclusion which could serve to further reduce weightings,” says Pineda. “This significantly reduces their relevance on the MSCI index tracking and face the risk of being excluded from the index altogether. This in turn may result in outflow, especially for index trackers.”
Amongst his top Singapore picks, Pineda has kept Singapore Telecommunications (Singtel), ComfortDelGro (CDG), Genting Singapore and Wilmar International as he sees them as beneficiaries of the re-opening and reflation themes.
See also: Suntec REIT biggest beneficiary from MAS’s ‘looser’ leverage, ICR rules: OCBC
To this end, Pineda has also identified OCBC as his “key financial sector pick” with the counter likely to benefit from a rising rate environment.
Photo: The Edge Singapore
