What Does SGX’s Lowered Min Lot Size Mean For Us?

 

Finally the day had come, the day that Singapore Exchange Limited (SGX:S68) reduced their minimum lot size from a thousand (1,000) shares to just a hundred (100)!

 

Finally those double digit priced banking counters like DBS Group Holdings Ltd (SGX:D05) and conglomerates like Jardine Matheson Holdings Limited (SGX:J36) were within reach. Previously one lot (1,000 shares) of Jardine Matheson Holdings was over US$60,000!!!

Now with the reduced lot size Jardine Matheson Holdings could be included in one’s portfolio for just 10% of the outlay (Well of course at the right price). This, in my opinion was a very welcomed move by SGX as a way to allow investors to diversify their portfolio into such blue chips. The only question that came to mind was why did it took so long.

 

How Can This Benefit Investors

• An affordable option to diversify their portfolio into Blue Chips
• This might lead to more liquidity in the market which means a lower bid-ask spread leading to lower transaction costs

 

Would This Change In Lot Size Increase Demand For Some Of These Blue Chips?

Some mainstream sources have suggested that the introduction of smaller lot sizes would not have a very significant impact on prices as institutional players would still be the ones driving the bulk of trading.

Another important reason would be that even with a reduced lot size, transaction fees would still be the same! No matter an outlay of $1,000 of even $5,000 you might end up with roughly the same transaction fee.

Say for example, if you are paying $25 for a transaction of $1,000 and $5,000:

$25 as a % of $1,000 = 2.5%

$25 as a % of $5,000 = 0.5%

For an investor with costs as a priority (Given a fixed transaction cost), it make more sense to have a larger outlay to lower the % of fees as part as your outlay!

 

So How Has The 30 Stocks On The STI Reacted?

Find out right HERE!!!

In summary, after the first day of trading on 19 Jan 2015, as expected by most of the mainstream media prior to the event, there was almost no significant change in demand reflected from the price levels of all 30 stocks in the STI.

The STI only increased by a mere 0.16% from a price level point of view.

To isolate those pricier shares, we separated those with a share price of $5 or higher (Highlighted in yellow). This was the group that was said to be the “most affected” by this regulation. However, the results were even lower with an increase of just 0.13%!

 

Value In Action

When it’s all said and done, this minimal impact from a price level perspective shouldn’t have come as such a surprise as this doesn’t really have much of a fundamental impact on the underlying business.

However, this is still a very welcomed change as it allows investors to be able to invest in companies that were previously out of their scope 🙂

 

Join us on Facebook for more exciting updates and discussion about value investing. Submit your email address for important market updates and FREE case studies! 

Download The Workshop Resources &
Stay Up to date with the stock market with our Newsletter!
Enter Your Email address here:

Leave this field empty if you're human:

We will only provide you with information relevant to value investing. You can unsubscribe at any time. Your contact details will be safeguarded.The information provided is for general information purposes only and is not intended to be any investment or financial advice.

All views and opinions articulated in the article were expressed in Mun Hong’s personal capacity and do not in any way represent those of his employer and other related entities. Mun Hong does not own any shares in the companies mentioned above.

There is no ads to display, Please add some