Written by Financial Daily
Thursday, 18 June 2009 10:55
THE imminent transition to the FTSE Bursa Malaysia KLCI (FBM KLCI) as the new benchmark index from the Kuala Lumpur Composite Index (KLCI) will have a net positive impact on the market, as big-capitalised liquid stocks will boost the quality of the new index, according to CIMB Research.
“As investors have less than three weeks to adjust their portfolios before the FBM KLCI takes effect, the impact on the market should be significant. The net impact should be positive as big-cap liquid stocks with high free float also happen to be blue that are reasonably well-managed too.
“This concentration on quality could push up the FBM KLCI, especially if foreign funds return to Malaysia in a big way,” the research house said.
Theoretically, the market should be lifted by the selling of the 73 stocks no longer in the index and buying of FBM KLCI component stocks, it added. “We maintain our overweight stance and year-end KLCI target of 1,220 points,” it said.
FBM KLCI will replace the KLCI on July 6. The new index has only 30 constituents compared with the current 100 in the KLCI.
The 30 stocks will comprise the 30 largest stocks by market capitalisation with a minimum free float of 15% and 10% annual turnover of free float shares. The KLCI is weighted by market cap whereas FBM KLCI is market cap-weighted adjusted for free float and liquidity.
Effectively, the KLCI will be replaced by the existing FBM Large 30 index (FBM30), which will subsequently cease to exist on July 6.
In the June review of the FBM30 component stocks, there were surprisingly no changes at all, CIMB Research said. “This is a letdown for investor favourites, such as IJM Corp Bhd, Gamuda Bhd and S P Setia Bhd, as many expected the recent rally in their share prices to increase their chances of making the cut.”
While studies by Bursa Malaysia suggested that the direct impact of the index transition on indexed funds would be minimal at below RM200 million, CIMB Research said it might have a bigger-than-expected psychological impact.
“Fortunately, investors (at CIMB’s ongoing global roadshow) are more curious about the winners rather than losers as few appear concerned that many smaller- to mid-cap stocks will disappear from the benchmark. Clearly, size and liquidity matter to foreign investors in a rising market where they have minimal exposure,” it noted.
With the index switch, only five out of 21 sectors emerge as winners in terms of weightings. The finance sector will make up 34% of the FBM KLCI while plantations will constitute over 20% of the new index, CIMB Research noted.
“Their combined weighting of 55% makes these two sectors the most important sectors for any fund to focus on to outperform. The power sector has a weighting of over 11%, gaming 10% and telecommunications 9%,” it said.
It added that the top five sectors — finance, plantations, power, gaming and telecommunications — make up 85% of FBM KLCI’s weightings. “This concentration may be negative for all other sectors as they may over time be overlooked and neglected.”
The biggest winners in terms of a jump in sector weightings are finance (from 25% to 34%), gaming (6% to 10%) and power (8% to 11%).
Meanwhile, seven sectors, namely building materials, construction, hotels, insurance, property, timber and technology, will disappear from the radar screen altogether. Within these sectors, some of the bigger names that are popular with local and foreign investors will be dropped. They include:
* Lafarge Malayan Cement Bhd and Ann Joo Resources Bhd (building materials);
* Gamuda, IJM Corp, Malaysian Resources Corporation Bhd, Muhibbah Engineering (M) Bhd and WCT Bhd (construction);
* IGB Corp Bhd, KLCC Property Holdings Bhd, Mah Sing Group Bhd, S P Setia, Sunrise Bhd and YNH Property Bhd (property);
* Lingui Developments Bhd, Ta Ann Holdings Bhd and WTK Holdings Bhd (timber);
* Malaysian Pacific Industries Bhd, Uchi Technologies Bhd and Unisem (M) Bhd (technology).
In terms of individual stocks, the biggest winners are companies currently excluded from the KLCI because of double counting, namely Resorts World Bhd, YTL Power International Bhd and Parkson Holdings Bhd. From nothing, Resorts will have the 10th largest weighting at 2.6%, YTL Power the 20th largest at 1.6% while Parkson comes in at number 26 based on 0.8% weighting.
CIMB Research said concentration in the top 10 stocks in the FBM KLCI had intensified. Under the KLCI, the top 10 stocks have a combined weighting of 51% whereas under FBM KLCI, their weighting is 71%.
The top 10 FBM KLCI stocks are Bumiputra-Commerce Holdings Bhd, Malayan Banking Bhd and Public Bank Bhd (banks); Sime Darby Bhd and IOI Corp Bhd (plantations); Genting Bhd and Resorts (gaming); Axiata Group Bhd (telco); Tenaga Nasional Bhd (power); and MISC Bhd (transport).
“This means that investors can replicate quite closely the FBM KLCI by just buying the top 10 or 15 stocks,” it said. The research house rated outperform on Sime Darby, Public Bank, Axiata, Genting and Resorts.
All in all, out of 103 stocks affected, there are 15 gainers in terms of increase in weightings against 88 losers. The biggest losers are the 73 companies that fail to make the cut, including institutional favourites such as AirAsia Bhd, Bursa Malaysia Bhd, EON Capital Bhd, KNM Group Bhd and Top Glove Corporation Bhd.
Thursday, 18 June 2009 10:55
THE imminent transition to the FTSE Bursa Malaysia KLCI (FBM KLCI) as the new benchmark index from the Kuala Lumpur Composite Index (KLCI) will have a net positive impact on the market, as big-capitalised liquid stocks will boost the quality of the new index, according to CIMB Research.
“As investors have less than three weeks to adjust their portfolios before the FBM KLCI takes effect, the impact on the market should be significant. The net impact should be positive as big-cap liquid stocks with high free float also happen to be blue that are reasonably well-managed too.
“This concentration on quality could push up the FBM KLCI, especially if foreign funds return to Malaysia in a big way,” the research house said.
Theoretically, the market should be lifted by the selling of the 73 stocks no longer in the index and buying of FBM KLCI component stocks, it added. “We maintain our overweight stance and year-end KLCI target of 1,220 points,” it said.
FBM KLCI will replace the KLCI on July 6. The new index has only 30 constituents compared with the current 100 in the KLCI.
The 30 stocks will comprise the 30 largest stocks by market capitalisation with a minimum free float of 15% and 10% annual turnover of free float shares. The KLCI is weighted by market cap whereas FBM KLCI is market cap-weighted adjusted for free float and liquidity.
Effectively, the KLCI will be replaced by the existing FBM Large 30 index (FBM30), which will subsequently cease to exist on July 6.
In the June review of the FBM30 component stocks, there were surprisingly no changes at all, CIMB Research said. “This is a letdown for investor favourites, such as IJM Corp Bhd, Gamuda Bhd and S P Setia Bhd, as many expected the recent rally in their share prices to increase their chances of making the cut.”
While studies by Bursa Malaysia suggested that the direct impact of the index transition on indexed funds would be minimal at below RM200 million, CIMB Research said it might have a bigger-than-expected psychological impact.
“Fortunately, investors (at CIMB’s ongoing global roadshow) are more curious about the winners rather than losers as few appear concerned that many smaller- to mid-cap stocks will disappear from the benchmark. Clearly, size and liquidity matter to foreign investors in a rising market where they have minimal exposure,” it noted.
With the index switch, only five out of 21 sectors emerge as winners in terms of weightings. The finance sector will make up 34% of the FBM KLCI while plantations will constitute over 20% of the new index, CIMB Research noted.
“Their combined weighting of 55% makes these two sectors the most important sectors for any fund to focus on to outperform. The power sector has a weighting of over 11%, gaming 10% and telecommunications 9%,” it said.
It added that the top five sectors — finance, plantations, power, gaming and telecommunications — make up 85% of FBM KLCI’s weightings. “This concentration may be negative for all other sectors as they may over time be overlooked and neglected.”
The biggest winners in terms of a jump in sector weightings are finance (from 25% to 34%), gaming (6% to 10%) and power (8% to 11%).
Meanwhile, seven sectors, namely building materials, construction, hotels, insurance, property, timber and technology, will disappear from the radar screen altogether. Within these sectors, some of the bigger names that are popular with local and foreign investors will be dropped. They include:
* Lafarge Malayan Cement Bhd and Ann Joo Resources Bhd (building materials);
* Gamuda, IJM Corp, Malaysian Resources Corporation Bhd, Muhibbah Engineering (M) Bhd and WCT Bhd (construction);
* IGB Corp Bhd, KLCC Property Holdings Bhd, Mah Sing Group Bhd, S P Setia, Sunrise Bhd and YNH Property Bhd (property);
* Lingui Developments Bhd, Ta Ann Holdings Bhd and WTK Holdings Bhd (timber);
* Malaysian Pacific Industries Bhd, Uchi Technologies Bhd and Unisem (M) Bhd (technology).
In terms of individual stocks, the biggest winners are companies currently excluded from the KLCI because of double counting, namely Resorts World Bhd, YTL Power International Bhd and Parkson Holdings Bhd. From nothing, Resorts will have the 10th largest weighting at 2.6%, YTL Power the 20th largest at 1.6% while Parkson comes in at number 26 based on 0.8% weighting.
CIMB Research said concentration in the top 10 stocks in the FBM KLCI had intensified. Under the KLCI, the top 10 stocks have a combined weighting of 51% whereas under FBM KLCI, their weighting is 71%.
The top 10 FBM KLCI stocks are Bumiputra-Commerce Holdings Bhd, Malayan Banking Bhd and Public Bank Bhd (banks); Sime Darby Bhd and IOI Corp Bhd (plantations); Genting Bhd and Resorts (gaming); Axiata Group Bhd (telco); Tenaga Nasional Bhd (power); and MISC Bhd (transport).
“This means that investors can replicate quite closely the FBM KLCI by just buying the top 10 or 15 stocks,” it said. The research house rated outperform on Sime Darby, Public Bank, Axiata, Genting and Resorts.
All in all, out of 103 stocks affected, there are 15 gainers in terms of increase in weightings against 88 losers. The biggest losers are the 73 companies that fail to make the cut, including institutional favourites such as AirAsia Bhd, Bursa Malaysia Bhd, EON Capital Bhd, KNM Group Bhd and Top Glove Corporation Bhd.