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Thursday, June 2, 2011

Changes to FBM KLCI list?

New index members? There might be changes to the FTSE Bursa Malaysia KLCI or FBM KLCI line-up at the mid-year semi-annual periodic review. This benchmark index represents 30 of Malaysia’s largest listed companies ranked by full market cap, which must also meet the freefloat criteria and pass the liquidity test. Using 31 May as the cut-off date, our simulation reveals two potential new entrants – MMHE (RM12.4b market cap) and UEM Land (RM11.4b market cap) – in the member list. Any changes to the index composition will take effect after market close on 17 Jun.

Likely omissions. Although both MMHE and UEM Land – the 26th and 27th largest companies by full market cap – are below the 25th position (a stock must rise to this spot
or above to be inserted as a new constituent under the buffer ruling; see Fig 1 for details), they could still gain entry into the index. This is because: (a) a replacement may be named ahead of the PLUS delisting (RM22.5b market cap) in 3Q11; and (b) MAS (RM4.6b market cap)
has dropped to 51st position, which means it will be dropped as an index constituent under the review rules.

Portfolio rebalancing effects. A snapshot of the probable FBM KLCI line-up is depicted in Fig 3, showing MMHE and UEM Land with relative weights of 0.76% and 0.69%, respectively, based on 31 May close. Changes to the index, if any, could see index-tracking fund managers rejigging their portfolios. We saw share price swings recently in response to the inclusion of MMHE, UEM Land and MAHB into (and the exclusion of PLUS and MAS from) the MSCI Malaysia Index.
Our current recommendations for the stocks under our coverage are PLUS (Hold; TP RM4.60) and MAS (Fully Valued; TP RM1.10).

Report from HWangDBS

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