The effects of Index changes in the Hong Kong and Singapore stock markets February 2006

Transcription

1 Draft: Work in progress Please do not quote Working Paper: The effects of Index changes in the Hong Kong and Singapore stock markets February 2006 S. Gowri Shankar and Dipinder S Randhawa* Work in progress: This paper is being extended to incorporate the behaviour of market analysts. Specifically we ask whether analysts provide more optimistic forecasts following inclusion of a stock into the index, and conversely if the forecasts have a downward bias after the deletion of a stock from the index. The questions of the number of analysts tracking the relevant stock and the role of mutual funds tracking the index are also addressed. S. Gowri Shankar Assistant Professor University of Washington, Bothell Business Administration Program Campus Way NE, Box Bothell, WA Phone: shankar@u.washington.edu (Corresponding author) Dipinder S Randhawa* Saw Centre for Financial Studies NUS Business School National University of Singapore Singapore Phone: (65) bizdsr@nus.edu.sg

2 The effects of index changes in Hong Kong and Singapore stock markets Abstract We study the price and volume effects of changes to the Straits Times Index and the Hang Seng Index indices for the stock markets in Singapore and Hong Kong. We find an asymmetry in the responses in the two markets. The Hong Kong market reacts positively, albeit temporarily, to news of additions to the index, reflecting pressure on prices of concerned stocks. Trading volumes exhibit commensurate significant changes. On the other hand, the Singapore market does not demonstrate any abnormal price or volume effects in the aftermath of index changes. While this finding warrants further examination, it suggests that price changes stem from demand supply disequilibrium rather than perceptions of new information signalled by changes in the index. 1

3 The effects of index changes in Hong Kong and Singapore stock markets Changes in the composition of stock market indexes have been found to have significant effects on the prices and trading volumes of stocks affected by the changes. Several studies have shown that stocks added to (deleted from) the index experience price and volume increases (decreases) following announcement of the index change. In one sense these results are not surprising given that index inclusion (exclusion) leads to an excess demand (supply) for the included (excluded) stock from the large number of index funds that track these indexes and this excess gets reflected in price and volume changes. However, these effects have long puzzled researchers because, in efficient markets, the inclusion or deletion of a stock should not affect prices if index changes do not signal new information. Shleifer (1986) argues that these observed effects suggest that the demand curves for stocks slope downwards, rather than the horizontal demand curve posited by the efficient market hypothesis (EMH). Harris and Gurel (1986) report that the price and volume effects are temporary and conclude that long-run demand curves are horizontal. Several recent studies suggest that the price and volume effects may, in fact, result from the new information signalled about the firm s future prospects. Other explanations proposed to explain the price and volume effects include changes in liquidity and investor awareness. The research on this topic has focussed primarily on US market indexes, in particular the S&P 500. Very few studies have considered index changes outside the US and even fewer have addressed the issue in the context of Asian markets. This study carries out a comparative analysis of the effects of changes in the main market indexes in Hong Kong and Singapore, two of the most effectively regulated and stable financial markets in the region. The Hong Kong and Singapore stock markets offer a different institutional context to test these effects. Unlike US market indexes, the Hang Seng Index (HSI) of the Hong Kong stock 2

4 market and the Straits Times Index (STI) of the Singapore market are not tracked by a large number of index funds; the HSI is tracked by three funds and the STI by one fund, all of which have been initiated only recently. Thus it would be of interest to examine if the effects of HSI and STI index changes differ from those observed in case of widely tracked indexes such as the S&P 500 and, if so, the potential explanations for the differences. The HSI is a market-capitalization weighted index for the Hong Kong Stock Exchange. It is maintained by HSI Services Limited, a wholly owned subsidiary of Hang Seng Bank, the second largest bank in Hong Kong. The HSI reflects daily prices of the 33 largest companies of the Hong Kong stock market that together account for 70% of the capitalization of the Hong Kong Stock Exchange. Firms are selected for inclusion in the HSI based on their (i) market capitalization and turnover rankings, (ii) financial performance and (iii) representation of the respective industry sub-sectors within HSI. In December 2005, the HSI was tracked by two large exchange traded funds; the Tracker Fund of Hong Kong (launched in 1999) with assets in excess of HK$ 28 billion and the HSI-ETF (launched in 2004) with assets in excess of HK$9 billion. In addition to these ETF s, participants in the Hong Kong SAR workforce who contribute to the Mandatory Provident Fund scheme also have the option of investing their retirement savings in an index mutual fund that tracks the Hang Seng Index. The STI is also a market-capitalization weighted index comprising the 50 largest and most actively traded stocks on the Singapore Exchange. It was constructed and is actively managed by the Singapore Press Holdings, a large media conglomerate in Singapore; the primary objective of the index is similarly to chart the performance of the stock market through an aggregation of daily prices of stocks included in the STI. The STI constituent stocks account for 60 per cent of the average daily traded value and over 75 per cent of the 3

5 total market capitalisation on the Singapore Exchange. The only fund to track the STI so far is the streettracks STI (launched in 2002) which had assets worth about S$ 0.5 billion at the end of When indexes are not tracked by a large number of funds, we would expect that an index change would not cause an imbalance in demand and supply of the relevant stocks, thereby affecting prices. In such a situation, a significant price reaction would have to be ascribed solely to the information signalling effect of index changes. On the other hand, a lack of reaction here would provide strong support for the hypothesis that index effects reported in other markets are caused by excess demand. Thus, the results of this study, while contributing to the literature on the Hong Kong and Singapore stock markets, will provide some new insights as to why index changes cause price and volume reactions in markets all over the world. In the next section, we briefly review the literature on index change effects in the US and elsewhere. In subsequent sections, we describe our data and methodology. The final sections present our results and conclusions. Table 1: Market Capitalization to GDP (2003) Exchanges US$ Millions Market Capitalization GDP Ratio AMEX / NASDAQ / NYSE $ 14,266,023 $ 10,400, London $ 2,460,064 $ 1,520, Tokyo $ 2,953,098 $ 3,550, Hong Kong $ 714,597 $ 186, Singapore $ 148,503 $ 105, Australian $ 585,431 $ 528, Jakarta $ 54,659 $ 663, Korea $ 298,248 $ 931, Kuala Lumpur $ 160,970 $ 210, India $ 531,556 $ 2,660, New Zealand $ 33,050 $ 78, Philippine $ 23,190 $ 356, Taiwan $ 379,060 $ 406, Thailand $ 119,017 $ 429, Source: World Federation of Exchanges, 4

6 Literature Review Several hypotheses have been proposed to explain the price and volume effects in response to the inclusion or deletion of individual stocks from market indexes. All these hypotheses have been proposed in the context of changes to the US market indexes, and except where noted below, the studies have almost exclusively examined changes in the S&P 500 index. Price Pressure Hypothesis: The temporary price pressure hypothesis posits that inclusion of a share leads to increased demand for that share by funds managers tracking the index. Conversely when a share is deleted from the index, demand falls leading to a fall in the price. In efficient markets, other buyers/sellers will step in to absorb the excess demand/supply and, in the absence of any other information, the price effects should be temporary. Harris and Gruel (1986) find support for the price-pressure hypothesis with their study of S&P 500 index changes. Similarly, Biktimirov, Cowan and Jordan (2004) examine Russell 2000 index changes and find that the abnormal gains at reconstitution are reversed soon after, as predicted by the price pressure hypothesis. Imperfect Substitute/ Downward Sloping Demand Curve Hypothesis: Implicit in the idea of a perfectly elastic demand curve for stocks is the belief that stocks have perfect or near perfect substitutes. However, investors do have preferences for local stocks, for regional and national companies. Shleifer (1986) contends that the absence of perfect substitutes for shares results in downward sloping demand curves as investors are price sensitive and demand a premium to substitute their holdings for less desirable stocks. In this scenario, the announcement day price effects would be permanent. Shleifer (1986), Jain (1987) and Dhillon and Johnson (1991) all examine S&P 500 index changes over various periods and find that the announcement day effects are permanent; they do not find any evidence of price reversal after index changes are effected. 5

7 Liquidity Hypothesis: Harris and Gurel (1986), Beneish and Whaley (1996), Gosnell and Kreibel (2000), Chordia (2001) and Hegde and McDermott (2003) find evidence of a permanent increase in liquidity of stocks added to the index. The increase in trading volume results from transaction carried out by managers of mutual funds tracking the index. The increased liquidity lowers the risk premium resulting in higher share prices. If the liquidity hypothesis holds, we would expect a positive and statistically significant increase in price following the announcement of an addition to the index, and negative returns following the announcement of a deletion. Certification / Information Hypothesis: Embedded in the downward sloping demand curve and the price-pressure hypothesis is the assumption that inclusion of a share into an index is an information-free event. This draws upon S&P s assertion that addition (or deletion) does not reflect an opinion on the firm s earnings prospects. However, Jain (1987) contends that changes in the index do convey new information about the firm s prospects. He asserts that inclusion of a stock reflects an implicit belief on the part of S&P about the firm s stability, and thus, earnings prospects. Dhillon & Johnson (1991) find support for this proposition by demonstrating that inclusion of a share also affects the prices of derivatives on the firm s shares and other contingent securities. Denis, McConnell, Ovtchinnikov and Yu (2003) provide new evidence in support of the information hypothesis, showing that inclusion in the S&P 500 index leads to upward revisions in earnings estimates. Chen, Noronha and Singal (2004) suggest that S&P 500 index effect may result from heightened investor awareness of the firm, bringing increased market scrutiny and reducing unsystematic risk. In studies of non-us markets, Kaul, Mehrotra and Morck (2000) examine the effects of changes in the weights of stocks included in the Toronto Stock Exchange index from market-cap based to free-float based weights and find evidence of significant price increases during the event week; however, no price reversal occurred as trading volume returned to 6

8 normal levels after the event. Bildik and Gulay (2001) test changes in index composition for the Istanbul stock exchange and find stocks included in (deleted from) the ISE-100 and ISE- 30 generate positive (negative) returns. They speculate that the absence of index funds tracking the indexes appears to result in the effects being much smaller than in other markets; Comment [PS1]: they also find significant increase in trading volumes for both events. Liu (2000) examines Nikkei 500 index changes and finds significant price increases (decreases) for additions (deletions) with no post-event reversal, consistent with the downward sloping demand curve hypothesis. In contrast to these findings of permanent price effects, Chan and Howard (2002) report that positive returns precede inclusion in the open-ended Australian All Ordinaries index, but are fully reversed within weeks after inclusion. Table 7: Number of Listed Companies and Changes in Growth No. of Listed Companies on Exchange % Changes in No. of Listed Companies Hong Hong NYSE London Tokyo Kong Singapore NYSE London Tokyo Kong Singapore ,774 2,559 1, ,989 2,572 1, ,750 2,440 1, ,945 2,412 1, ,128 2,416 1, ,242 2,502 1, ,476 2,623 1, ,626 2,513 1, ,670 2,423 1, ,025 2,274 1, ,468 2,374 2, ,400 2,332 2, ,366 2,272 2, Source: World Federation of Exchanges, Data Our sample consists of all the changes in the HSI from 1990 to 2004 and the STI from 1998 to There are 33 additions to and 33 deletions from the HSI; with the STI, we have 35 additions and 35 deletions. A list of these stocks is attached to the appendix. For each of 7

9 these stocks, we obtain the daily price and volume data from DataStream; we drop a stock if this data is not available for at least 280 days before announcement and 280 days after the effective day. After this screen, we are left with daily returns and trading volumes for 30 additions to and 21 deletions from the HSI; for the STI, we have 34 additions and 35 deletions. We also collect data on the daily index levels and total market volume from DataStream. Firms are deleted from an index on account of bankruptcy, a merger, or following acquisition. In such cases firms cease to exist on the register of live companies. To obtain price and trading volume information on these firms, we turn to the dead firms register in Datastream. Information on the announcement and effective dates for the changes in the two indices is obtained from Singapore Press Holdings and Hang Seng Company. Methodology Price effects: We assess the price effects of HSI and STI changes by examining the abnormal returns around the announcement day. We use two different measures of abnormal returns. First, we calculate the abnormal return as the difference between the stock return and the return on the relevant index; this measure is the market-adjusted return measure used by Lynch and Mendenhall (1997) and Chen, Noronha and Singal (2004), among others. Next, we compute the abnormal return as the market model residual, with the Brown & Warner, 1985 methodology. The market model parameters are estimated over a 240-day preannouncement window (ranging from -280 days to -41 days relative to the announcement day) with the index returns as the proxy for the market portfolio 1. 1 Edmister, Graham and Pirie (1994) point out that using a pre-event window to estimate the model parameters could result in a run-up (or run-down) bias. To rule out this bias, we also compute excess returns using an identical post-event estimation period ranging from +41 to +280 days following the effective date. After examining the results, our conclusions remain unchanged. 8

10 Volume Effects: To study the effects of index changes on trading volumes, we compute an excess volume measure, similar to Harris & Gurel (1986), as follows: Abnormal volume = ( V i,t / V i ) / ( V m,t / V m ) where V i,t is the volume on day t for stock i, V i is the average volume turnover for stock i in a 60-day base period starting 90 days and ending 30 days before the index change announcement, V m,t is the market volume on day t and V m is the average market volume in the base period. Market volume is defined as the volume of all stocks that are traded on the exchange. Results We report the price effects for HSI index changes in Table 1 and for the STI index changes in Table 2. In the Hong Kong market, we find significant positive returns on the announcement day for the 30 additions to the HSI, using both the market-adjusted return and market-model excess return measures. For ten of these additions, there is a gap of a few days between the announcement and the effective day during which the additions continue to show positive returns. However, there is a significant reversal on the effective day when the returns turn negative. Continuing along, we find that the cumulative return for the period that starts with the announcement and ends 10 days after the effective day is not statistically significant; this suggests that the announcement day positive returns are fully reversed within ten days after the effective day. With HSI deletions, we find that the announcement day reaction to the 21 HSI deletions is significantly negative, as expected. However, the negative returns appear to have been reversed in the post announcement period. We find that the cumulative return over the announcement to 10 days after the effective day period is not statistically distinguishable from zero. Thus, with HSI additions and deletions, we find strong support for full reversal of 9

11 the price effects. These results are consistent with price-pressure hypothesis reported in other markets. In the Singapore market, we find no significant price effects following additions to the STI, as shown in Table 2. This finding is significant, given that the STI did not have an index fund following for most of the period under study; this would appear to suggest that the price effects reported for HSI additions (and index additions in other studies) may be driven more by the excess demand for the newly added stocks than the information signalled by inclusion in the index. We do find positive returns in the post-announcement period for the 22 additions where the effective day is different from the announcement day. However, the returns turn negative on the effective day and the market-adjusted returns measure shows that the cumulative returns from announcement to 10 days after the effective day is not statistically significant; this suggests that the positive returns in the immediate aftermath of the announcement are fully reversed subsequently. The market-model excess return measure, which is significantly negative for this period, also supports the price reversal hypothesis, though it suggests that the reversal happens sooner than 10 days after the effective day. Examining the 35 deletions from the STI, we find that the price effects are negative all the way from announcement to 10 days after the effective day. For example, the cumulative returns from the announcement to 10 days after listing are a substantial -8.67% (it is -11% using the market-model excess return measure). This is the only subset in our sample where we observe permanent price effects following an index change. We next examine the effects of index changes on the trading volume of the affected stocks. The median abnormal volume (measured relative to the base period volume and adjusted for market volume changes) for the additions and deletions over different observation periods is in Table 3. We also report the proportion of the sample for which the observed volume exceeds the base period volume. For HSI additions and deletions, we find a 10

12 spike in volume on the announcement day and the listing day, but trading volume before announcement and after the effective day is at normal levels. This result, together with the price effects, suggests that the reaction to HSI changes is consistent with the price pressure hypothesis. In the case of STI changes, we are puzzled by a significant drop in the volume for both index additions and deletions. The pre-announcement and post-effective day volumes for STI additions are at normal levels; for STI deletions, we find that trading volumes are slightly higher than normal after the effective day. Conclusions We examine the price and volume effects on stocks involved in changes in the Hang Seng Index of Hong Kong and the Straits Times Index of Singapore. The total investment in funds that track the HSI (over HK$ 37 billion) is substantially greater than the investment in funds that track the STI (nearly S$ 0.5 billion). Stocks added to the HSI show significantly positive returns at announcement but these returns are subsequently reversed within 10 days after the effective day. Stocks deleted from the HSI experience the opposite effect; there is a significant decline in prices on the announcement day, but within ten days of the effective day, the cumulative returns are not statistically significant. These effects are confirmed by the trends in the abnormal trading volume which shows a spike around the announcement and effective days, but reverts to normal in the post-effective day period. For STI additions we do not find any significant reaction on the announcement day; in the subsequent periods also, the returns are not substantial. We find it interesting that addition to the STI index, which does not have a large index fund following, does not lead to large price reactions. It leads us to the conclusion that the price effects noted with other index additions may result largely from the demand-supply disequilibrium caused by index mutual funds and ETF s rather than any new information or certification signalled by index inclusion. Alternatively, it is also possible that in markets like Singapore and Hong Kong where the 11

13 number of securities traded is relatively small, the information or certification signalled by index inclusion is not significant, since market participants are aware of the prospects for these firms even before index inclusion. 12

14 References Beneish, Messod D., and Robert E. Whaley, An Anatomy of the "S&P 500 Game": The Effects of Changing the Rules. Journal of Finance 51: Bildik Recep and Guzhan Gulay, Effects of Changes in Index Composition on Stock Market: Evidence from Istanbul Stock Exchange, SSRN Workig paper id Biktimirov, Ernest N., Arnold R. Cowan, and Bradford D. Jordan, Do Demand Curves for Small Stocks Slope Down? Journal of Financial Research 27: Brown, Stephen J., and Jerold B. Warner, Using Daily Stock Returns: The Case of Event Studies. Journal of Financial Economics 14: Chan, Howard., and Peter F. Howard, Additions to and deletions from an open-ended market index: Evidence from the Australian All-Ordinaries. Australian Journal of Management 27: Chen, Honghui, Gregory Noronha, and Vijay Singal, The Price Response to S&P 500 Index Additions and Deletions: Evidence of Asymmetry and a New Explanation. Journal of Finance 59: Chordia, Tarun, Liquidity and Returns: The Impact of Inclusion into the S&P 500 index, Working paper, Emory University Denis, Diane K., John J. McConnell, Alexei V. Ovtchinnikov, and Yun Yu, S&P 500 Index additions and earnings expectations. Journal of Finance 58: Dhillon, Upinder, and Herb Johnson, Changes in the Standard and Poor's 500 List. Journal of Business 64: Edmister, Robert O., Steven A. Graham, and Wendy L. Pirie, Excess returns of index replacement stocks: Evidence of liquidity and substitutability. Journal of Financial Research 17: Harris, Lawrence, and Eitan Gurel, Price and Volume Effects Associated with Changes in the S&P 500 List: New Evidence for the Existence of Price Pressures. Journal of Finance 41: Hegde, Shantaram P., and John B. McDermott, The liquidity effects of revisions to the S&P 500 index: an empirical analysis. Journal of Financial Markets 6: Gosnell, Thomas and Timothy Kreibel, Market Liquidity and Changes in the Roster of the Standard and Poor s 500 Index, Oklahoma State University Working Paper Jain, Prem C., The Effect on Stock Price of Inclusion in or Exclusion from the S&P 500. Financial Analysts Journal 43: Kaul, Aditya, Vikas Mehrotra, and Randall Morck, Demand curves for stocks do slope down: New evidence from an index weights adjustment. Journal of Finance 55: Lynch, Anthony W., and Richard R. Mendenhall, New Evidence on Stock Price Effects associated with changes in the S&P 500. Journal of Business 70: Liu, Shinhua, Changes in the Nikkei 500: New Evidence for downward sloping demand curves for stocks. International Review of Finance 1: Shleifer, Andrei., Do Demand Curves for Stocks Slope Down? Journal of Finance 41:

15 TABLE 1 Price effects for stocks added to and deleted from the Hang Seng index The market-adjusted cumulative returns and the market model cumulative abnormal returns for all stocks added to the Hang Seng Index between 1990 and 2004 are in the first panel, followed by similar data for all stocks deleted from the Index. The market adjusted return is the excess of the daily stock return over the index return. Market model abnormal returns are based on model parameters estimated over a 240 day pre-event window (days -280 to -41 relative to the announcement day) with the index as the proxy for the market. Period N Market-adjusted return Market model excess return Mean Median t-stat Mean Median t-stat Hang Seng Index Additions Pre-announcement period (AD-10, AD-1) % -0.20% % -1.25% Announcement Day (AD) % 0.87% 2.42** 1.43% 0.68% 2.18** Post-announcement period (AD+1,ED-1) % 5.77% % 3.28% 1.51 Effective Day (ED) % -2.52% ** -1.95% -2.07% *** Post-Effective period (ED+1,ED+10) Announcement to Post- Effective period (AD, ED+10) % 0.65% % -2.30% % -0.44% % -3.37% Hang Seng Index Deletions Pre-announcement period (AD-10, AD-1) % -1.25% % -0.44% Announcement Day (AD) % -2.82% *** -3.33% -2.93% *** Post-announcement period (AD+1,ED-1) % -1.44% % -0.44% Effective Day (ED) % 1.72% % 1.69% 1.74 Post-Effective period (ED+1,ED+10) Announcement to Post- Effective period (AD, ED+10) % -0.22% % 0.29% % -1.69% % -1.00% *** Significant at the 1% level ** Significant at the 5% level 14

16 TABLE 2 Price effects for stocks added to and deleted from the Singapore Times index The market-adjusted cumulative returns and the market model cumulative abnormal returns for all stocks added to the Singapore Times Index between 1998 and 2004 are in the first panel, followed by similar data for all stocks deleted from the Index. The market adjusted return is the excess of the daily stock return over the index return. Market model abnormal returns are based on model parameters estimated over a 240 day pre-event window (days -280 to -41 relative to the announcement day) with the index as the proxy for the market. Period N Market-adjusted return Market model excess return Mean Median t-stat Mean Median t-stat Singapore Times Index Additions Pre-announcement period (AD-10, AD-1) % 2.21% % 0.45% 0.17 Announcement Day (AD) % 0.47% % -0.17% 0.23 Post-announcement period (AD+1,ED-1) % 1.18% 2.79*** 1.12% 1.18% 2.25** Effective Day (ED) % -1.03% % -1.52% *** Post-Effective period (ED+1,ED+10) Announcement to Post- Effective period (AD, ED+10) % -0.42% % -4.44% % 1.40% % -4.77% ** Singapore Times Index Deletions Pre-announcement period % -1.13% % -0.31% (AD-10, AD-1) Announcement Day (AD) % -0.41% % -0.63% ** Post-announcement period (AD+1,ED-1) % -2.91% *** -2.78% -3.17% *** Effective Day (ED) % -0.05% % -1.07% ** Post-Effective period (ED+1,ED+10) Announcement to Post- Effective period (AD, ED+10) % -5.15% *** -7.27% -7.42% *** % -6.34% *** % -7.65% *** *** Significant at the 1% level ** Significant at the 5% level 15

17 TABLE 3 Volume effects of changes in the Hang Seng Index and the Singapore Times Index The abnormal trading volume in the period of interest is measured relative to the average daily volume in the base period (days -90 to day -31 relative to announcement period) and is adjusted for the relative change in the market volume. The median of the abnormal volumes and the proportion of stocks for which the volume exceeds the base period volume are reported below. The significance of the proportions was tested using the binomial distribution. Period N Median Prop>base period vol N Median Prop>base period vol Pre-announcement period (AD-10, AD-1) Hang Seng Index additions Singapore Times Index Additions 30-2% 43% 34-7% 41% Announcement Day (AD) 28 30% 64% 34-32% 32%** Effective Day (ED) % 100%*** 22 18% 64% Post-Effective period (ED+1,ED+10) 30 0% 50% 34 4% 53% Pre-announcement period (AD-10, AD-1) Hang Seng Index deletions Singapore Times Index Deletions 21 10% 57% 35 14% 57% Announcement Day (AD) 21 65% 71%* 34-48% 26%*** Effective Day (ED) 9 380% 78% 26 9% 58% Post-Effective period (ED+1,ED+10) 21 7% 52% 35 26% 66%* *** Significant at the 1% level ** Significant at the 5% level * Significant at 10% 16

18 Table 4: Changes in the Hang Seng Index Additions Deletions Effective date Additions Deletions Effective date World Int'l 12-Dec Oriental Press 30-Nov-94 East Asia Nav 12-Dec Jar Matheson 30-Nov-94 Bank of East Asia 16-Jan Amoy Prop 30-Nov-94 Henderson Land 16-Jan Winsor Ind 30-Nov-94 Int'l City 16-Jan Johnson Elec 30-Nov-94 Swire Prop 16-Jan Lai Sun Int'l 30-Nov-94 Cross Har Tunnel 16-Jan Guangdong Inv 30-Nov-94 HK Aircraft 16-Jan Jar Strategic 30-Nov-94 Harbour Centre 16-Jan Shangri-La Asia 28-Feb-95 W Maritime 'A' 16-Jan-84 7 HK Land Hldgs 28-Feb-95 Hysan Dev 05-Jul Sino Land 28-Feb-95 Swire Prop 05-Jul Dairy Farm Int'l 28-Feb-95 HK-TVB 03-Jun SCMP (Hldgs) 28-Feb-95 Hang Lung Dev W Marden 'A' 03-Jun Dec Henderson Inv 422 Mandarin Oriental 28-Feb Aug-96 Int'l City 02-Dec HK Aircraft 30-Aug-96 East Asia Nav 24-Mar First Pacific 30-Aug-96 Orient Overseas 24-Mar Miramar 30-Aug-96 HK Aircraft 24-Mar China Resources 31-Jul-97 Wah Kwong Ship 24-Mar Oriental Press 31-Jul-97 Cathay Pac Air 02-Jun CKI Hldgs 31-Jul-97 East Asia Nav 02-Jun Johnson Elec 31-Jul-97 Wharf (Hldgs) 06-Oct-86 2 CLP Hldgs 06-Jan-98 HK Wharf 06-Oct-86 2 China Light 06-Jan-98 Dairy Farm Int'l 05-Jan Shanghai Ind Hldgs 27-Jan-98 Wing On Co 05-Jan Shun Tak Hldgs 27-Jan-98 Jar Strategic 10-Feb China Telecom 27-Jan-98 Jar Securities 10-Feb SCMP (Hldgs) 27-Jan-98 G I Cement Hldgs 27-May Johnson Elec H 06-Dec-99 G I Cement 27-May HK & S Hotels 06-Dec-99 Cavendish Int'l 01-Sep Dao Heng Bank 06-Dec-99 HK Yaumati 01-Sep Hopewell Hldgs 06-Dec-99 Mandarin Oriental 01-Sep SmarTone Telecom 06-Dec-99 Stelux Hldgs 01-Sep Guangdong Inv 06-Dec-99 HK Telecom HK Telephone 02-Feb Li & Fung 02-Aug-00 TVB HK-TVB 24-Nov Legend Hldgs 41 Great Eagle Hldgs 02-Aug Aug Shangri-La Asia 02-Aug-00 Great Eagle 31-Jan PCCW 09-Aug-00 G I Cement Hldgs 31-Jan-89 8 CWHKT (HK telecom) 09-Aug-00 Hopewell Hldgs 31-Jan-89 8 PCCW 17-Aug-00 HK Realty 'A' 31-Jan PCCW 17-Aug-00 Lai Sun Int'l 31-Jan MTR Corporation 01-Jun-01 Tai Cheung 31-Jan First Pacific 01-Jun-01 HK Land Hldgs 16-May China Unicom 01-Jun-01 HK Land 16-May SmarTone 01-Jun-01 17

19 Telecom 41 Great Eagle Hldgs 12-Apr CNOOC 31-Jul Great Eagle 12-Apr Dao Heng Bank 31-Jul-01 5 HSBC Hldgs plc 03-Apr Esprit Hldgs 02-Dec-02 5 HK Bank 03-Apr Hang Lung Group 02-Dec CITIC Pacific 04-Aug BOC Hong Kong 02-Dec Cavendish Int'l 04-Aug Hysan Dev 02-Dec Shun Tak Hldgs 30-Jun Yue Yuen Ind 09-Jun Kln Motor Bus 30-Jun New World Dev 09-Jun Wheelock 24-Nov COSCO Pacific 09-Jun World Int'l 24-Nov Sino Land 09-Jun-03 18

20 Table 5: Changes in the Straits Times Index Index Event number Name change Action Announcement date Index Change Effective date 1 Sembcorp Industrial Included 05-Aug Aug-98 2 Hong Leong Asia Included 05-Aug Aug-98 3 Dairy Farm Included 28-Aug Aug-99 4 Serial System Included 28-Aug Aug-99 5 Econ International Included 28-Aug Aug-99 6 Hotung Investment Included 28-Aug Aug-99 7 Amara Holdings Included 28-Aug Aug-99 8 GES International Included 28-Aug Aug-99 9 Brilliant Manufacturing Included 28-Aug Aug Datapulse Included 28-Aug Aug Datacraft Included 28-Aug Aug Ingram Micro Dropped 28-Aug Aug FHTK Holdings Dropped 28-Aug Aug Robinsons Dropped 28-Aug Aug L&M Dropped 28-Aug Aug Hong Leong Finance Dropped 28-Aug Aug OUE Dropped 28-Aug Aug SPC Dropped 28-Aug Aug Freight Links Dropped 28-Aug Aug Chartered Semiconductor Included 09-Jun Jun Thakral Dropped 09-Jun Jun Capitaland Included 18-Nov Nov Delgro Included 06-Sep Sep Great Eastern Included 06-Sep Sep Jardine Strategic Included 06-Sep Sep Keppel Land Included 06-Sep Sep Natsteel Included 06-Sep Sep OUE Included 06-Sep Sep Sembcorp Logistics Included 06-Sep Sep Sembcorp Marine Included 06-Sep Sep Singapore Exchange Included 06-Sep Sep Singapore Land Included 06-Sep Sep SMRT Included 06-Sep Sep ST Assembly Included 06-Sep Sep Total Access Included 06-Sep Sep United Overseas Land Included 06-Sep Sep Advanced Systems Automation Dropped 06-Sep Sep Amara Holdings Dropped 06-Sep Sep Brilliant Manufacturing Dropped 06-Sep Sep Cerebos Dropped 06-Sep Sep Comfort Group Dropped 06-Sep Sep Datapulse Dropped 06-Sep Sep Econ International Dropped 06-Sep Sep First Capital Dropped 06-Sep Sep GP Batteries Dropped 06-Sep Sep Gul Tech Dropped 06-Sep Sep Guthries GTS Dropped 06-Sep Sep Hong Leong Asia Dropped 06-Sep Sep-01 19

21 49 Hwa Hong Dropped 06-Sep Sep Informatics Dropped 06-Sep Sep Kim Eng Dropped 06-Sep Sep Lindeteves-Jacoberg Dropped 06-Sep Sep Metro Dropped 06-Sep Sep MMI Dropped 06-Sep Sep Serial System Dropped 06-Sep Sep Haw Par Corporation Included 10-Oct Oct Allgreen Properties Included 25-Mar Apr MobileOne Included 25-Mar Apr People's Food Included 25-Mar Apr Hotel Properties Dropped 25-Mar Apr Marco Polo Development Dropped 25-Mar Apr UIC Dropped 25-Mar Apr Singapore Post Included 25-Feb Mar Cosco Investment Included 25-Feb Mar BIL International Included 25-Feb Mar TPV Technology Included 25-Feb Mar Hotung Investment Dropped 25-Feb Mar Natsteel Dropped 25-Feb Mar OUE Dropped 25-Feb Mar SMRT Dropped 25-Feb Mar-04 20