Share buybacks, beloved by analysts but perhaps met with less enthusiasm from investors and shareholders, are viewed as a move to improve total shareholders’ return. As many investors have articulated, they prefer dividends. Be that as it may, share buybacks can be used as a tool for management to support the stock during volatile markets.
However, despite its seeming resilience, the Singapore market’s performance has been moribund compared to the markets of India and Japan. Even China’s A shares have rallied.
As a result, our market has dropped in weight compared to other Asian markets. MSCI says: “As part of the May 2024 Index Review, using prices as of April 19, which is the cutoff date for prices used for the calculation of market capitalisation as part of the index review, the weight of the MSCI Singapore Index in the MSCI World Index will be 0.34% compared to 0.36% before the rebalancing.”
MSCI says the weight of a country in a composite index is the sum of the weight of all index constituents that are classified in that particular MSCI Country Index.
According to MSCI, the MSCI Global Investable Market Indexes (GIMI) are market capitalisation-weighted indexes. The weight of index constituents is determined as a ratio of its free float-adjusted market capitalisation relative to the total free float-adjusted market capitalisation of all index constituents of the index. Therefore, the weight of a country in a composite index is the sum of the weight of all index constituents that are classified in that particular MSCI Country Index.
The outperformance of India and Japan led to the decline of Singapore in the MSCI GIMI. Hence, Singapore faces the deletion of the bottom-five stocks and no additions.
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Of the stocks that were removed from the MSCI Global Standard Indexes, Singapore suffered five removals and no additions. The stocks that will be removed from the MSCI on May 31, or the bottom-five, are City Developments Limited C09 , Jardine Cycle & Carriage C07 , Mapletree Logistics Trust M44U , Mapletree Pan Asia Commercial Trust N2IU and Seatrium Limited.
While their removal is through no fault of their own, the free floats of City Developments and Jardine C&C have fallen. Of the two, shares outstanding from City Developments fell from 909.4 million at the start of 2024 to 893.9 million as at May 3 due to its share buyback programme.
At present, having purchased more than 15 million shares, CDL faces the prospect of being removed from the MSCI Singapore Index on May 31. Although its free-float market cap has not changed much from March before the share buyback started, the stock is out of the MSCI Singapore Index because the Singapore market has underperformed its peers.
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Jardine C&C, on the other hand, has seen its major shareholder Jardine Strategic gradually increase its stake, which now stands at a tad more than 79%, up from a shade below 75% at the beginning of 2023.
How can Singapore raise its weightage? Securities that outperform would see weight increases. On the other hand, holding prices steady and increasing the cumulative free-float market capitalisation of an MSCI Country Index (such as the addition of more securities) would also lead to an increase in the weight of the relevant MSCI Country Index relative to others within the composite index.
So, there we have it. Singapore needs more stocks, liquidity and higher price levels in its market to maintain its relevance in the MSCI World Index. Share buybacks drain liquidity as the shares in issue shrink. Analysts appear to have a fondness for share buybacks given the interest in them during a recent results season. But they do our free-float market cap no favours.
