Retail Sector Index: List of Stocks 1 comments

("Last price" refers to price on 9 Jun 06, the base index date)

The Retail Index is one that I have been wanting to do for some time. It seems like a good time now, with all the hulaloo about Singapore's tourism drive, the IRs, the revamping of Orchard Road, the current late-stage economic cycle. All these are expected to bring the long-languishing retail sector to the forefront.

The list of stocks in the index totals 15, and there are four main factors that guide inclusion/exclusion.
1. Market cap
2. Investor mindshare
3. Subsector representation (ie. I try to pick from most important retail sub-sectors for representativeness eg. department stores, luxuries, books, food, drugs, specialty etc)
4. Trading liquidity

Note that trading liquidity is less important in my list of considerations given that most retail stocks have been lightly traded due to lack of market interest.

The index will be weighted by market cap, as per normal.

Some points:
1) This index is meant to track Singapore's local retail sector. Hence foreign retail stocks like Hongguo and China Hongxing are excluded.

2) For reference, Singapore's Department of Statistics' Retail Sales Index classifies the retail sector under the following main activites: department stores, supermarkets, provision/sundry stores, food & beverages, motor vehicles, petrol service stations, medical goods & toiletries, wearing apparel & footwear, furniture & household equipment, recreational goods, watches & jewellery, telecommunications equipment & computers, optical goods & books, others. Some of these sub-sectors cannot be represented in my Retail Index due to lack of representative listed companies (eg. provision & sundry stores, recreational goods). Some sub-sectors' participating listed companies do not have their major operations in that segment (eg. petrol retail is a small part of SPC's operations, car distributorship in Singapore is a small part of Jardine Cycle & Carriage's operations, which centres on Indonesia) and hence they are excluded.

3) Restaurants belong to the catering sector which is not considered part of the retail sector, hence not represented (refer to SGX's Hotels & Restaurants index)

4) Again, index factors are used to scale down importance of certain stocks whose market weight is overwhelming (Capitamall REIT) or is disproportionate to their relevance/importance to the local retail sector (Osim). I also scaled up Kingsmen's importance by using index factor 2, given my belief that it will be a key play on the retail sector.

5) Although strictly speaking, an income-based REIT should be tracked by total return ie. cash distribution in addition to price appreciation, I have omitted this step for the Capitamall Trust since it is the only REIT in the index.

As before, I have backdated the index such that it starts on the same base as all my other indices ie. on Jun 9 2006. Hence there is a ready curve from Jun 9 till today. At last count (22 Dec) the index stands at 112.0, which means on average the retail index component stocks have rallied about 12% over the last six months, underperforming the STI.

As before, placements, delistings, rights issues of the index stocks will adjust the base market cap. So far I've had no chance to. The maths as follows:

1. Rights Issue
Adjusted Base AMV = Old Base AMV x (Old Current AMV + Payment for Rights)/(Old Current AMV)

2. New Listing
Adjusted Base AMV = Old Base AMV x (New Current AMV including New Listing)/(New Current AMV excluding New Listing)

3. Delisting
Adjusted Base AMV = Old Base AMV x (Old Current AMV excluding Delisting)/(Old Current AMV including Delisting)