● The KLCI index, followed by most domestic fund managers, will
be reduced from 100 stocks to 30 stocks on 6 July 2009
● With US$83 bn worth of domestic funds benchmarked to the
KLCI, changes in weightings and components could impact stock
prices.
● We know most of the index components, but it will be ‘eviewed’on 11 June, which could result in some changes, due to recent
significant changes in market capitalisations.
● Clear beneficiaries: BCHB, Public Bank, Resorts World, YTL
Power and Parkson, assuming no changes.
● Losers: Property, construction, hotel and tech stocks will not be
featured in the new index.
● Following the 11 June revision, possible new joiners are IJM,
Gamuda and SP Setia, which have high free floats.
● Potential drop-outs following the 11 June revision could include
borderline FBM30 components, such as MAS, RHB Capital and
Petronas Dagangan.
100-stock KLCI to be replaced by 30-stock index on 6 July
On 6 July, the FTSE Bursa Malaysia Large 30 Index (FBM30), which
currently consists of the 30 largest companies, weighted by market cap and adjusted for free float, will replace the existing 100-stock, market cap-weighted KL Composite Index (KLCI).
be reduced from 100 stocks to 30 stocks on 6 July 2009
● With US$83 bn worth of domestic funds benchmarked to the
KLCI, changes in weightings and components could impact stock
prices.
● We know most of the index components, but it will be ‘eviewed’on 11 June, which could result in some changes, due to recent
significant changes in market capitalisations.
● Clear beneficiaries: BCHB, Public Bank, Resorts World, YTL
Power and Parkson, assuming no changes.
● Losers: Property, construction, hotel and tech stocks will not be
featured in the new index.
● Following the 11 June revision, possible new joiners are IJM,
Gamuda and SP Setia, which have high free floats.
● Potential drop-outs following the 11 June revision could include
borderline FBM30 components, such as MAS, RHB Capital and
Petronas Dagangan.
100-stock KLCI to be replaced by 30-stock index on 6 July
On 6 July, the FTSE Bursa Malaysia Large 30 Index (FBM30), which
currently consists of the 30 largest companies, weighted by market cap and adjusted for free float, will replace the existing 100-stock, market cap-weighted KL Composite Index (KLCI).
The FBM30, which will be renamed as FTSE Bursa Malaysia KLCI (FBM KLCI), will take KLCI’s closing value on 3 July, as its opening value on 6 July, to ensure continuity.
FBM KLCI will consist of FBM30’s existing components and weightings, which is subject to semi-annual reviews carried out every second Thursday of June and December.
Significant liquidity impact 
Any change in weighting and components of the KLCI will have a
significant impact on affected stocks, in our view, due to the fact that 35% of Malaysia’s market capitalisation is benchmarked to the KLCI. We estimate that this represents some US$83 bn, of which US$43 bn is institutional money and US$40 bn is government-linked equity funds. This is 1.7x the foreign holdings (market foreign ownership is 21%). Assuming funds are fully invested and maintain a neutral weight throughout, for every 1% change in weightings, it is equivalent to US$830 mn in new/less money that could be invested in a stock.
Any change in weighting and components of the KLCI will have a
significant impact on affected stocks, in our view, due to the fact that 35% of Malaysia’s market capitalisation is benchmarked to the KLCI. We estimate that this represents some US$83 bn, of which US$43 bn is institutional money and US$40 bn is government-linked equity funds. This is 1.7x the foreign holdings (market foreign ownership is 21%). Assuming funds are fully invested and maintain a neutral weight throughout, for every 1% change in weightings, it is equivalent to US$830 mn in new/less money that could be invested in a stock.
Comparing today’s FBM30 component weights (prior to review) with
the current KLCI 100, we deduce the following from the move to FBM
KLCI:
the current KLCI 100, we deduce the following from the move to FBM
KLCI:
Top gainers
FBM KLCI stocks with higher free float like BCHB (+4.75% increase in
index weighting) and Public Bank (+4.51%) could be ascribed a higher
weighting under the new FBM KLCI classification. Resorts (+2.66%),
YTLP (+1.61%) and Parkson (+0.79%), assuming that they stay on as a component of the FBM30 in the upcoming review on 11 June, would be new features, as they are currently not a part of the KLCI.
FBM KLCI stocks with higher free float like BCHB (+4.75% increase in
index weighting) and Public Bank (+4.51%) could be ascribed a higher
weighting under the new FBM KLCI classification. Resorts (+2.66%),
YTLP (+1.61%) and Parkson (+0.79%), assuming that they stay on as a component of the FBM30 in the upcoming review on 11 June, would be new features, as they are currently not a part of the KLCI.
Top losers
Construction, property, hotel and tech stocks do not feature in the current FBM30 components.
Construction, property, hotel and tech stocks do not feature in the current FBM30 components.
Impact of 11 June review
IJM, Gamuda and SP Setia are now among the top 35 market cap stocks and among the top 25 in MSCI weighting (free-float based). As such, they could possibly be included following the upcoming FTSE index review. Judging from MSCI weightings (also free-float weighted), we estimate that IJM (63% free float), Gamuda (87%) and SP Setia (56%) could have a weighting of between 1.5% and 2% (versus 0.9% weighting respectively for IJM and Gamuda, and 0.7% for SP Setia on KLCI now).
IJM, Gamuda and SP Setia are now among the top 35 market cap stocks and among the top 25 in MSCI weighting (free-float based). As such, they could possibly be included following the upcoming FTSE index review. Judging from MSCI weightings (also free-float weighted), we estimate that IJM (63% free float), Gamuda (87%) and SP Setia (56%) could have a weighting of between 1.5% and 2% (versus 0.9% weighting respectively for IJM and Gamuda, and 0.7% for SP Setia on KLCI now).
Potential losers could include borderline entries like MAS (30% free float), RHB Cap (18%) and Petronas Dagangan (30%), as they may be penalised for their low free float percentage, which takes a more significant meaning under the new FBM KLCI definition.
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