INVESTORS in the local bourse will witness the launch of an enhanced benchmark index next Monday, July 6. The KL Composite Index will be known as the FTSE Bursa Malaysia KLCI (FBM KLCI) and will continue to be the bellwether index for the Malaysian stock market, as it had been since its creation in April 1986.
A more investor-friendly bellwether index
One of the major features is that the FBM KLCI will be leaner and more robust, consisting of the 30 largest eligible companies by market capitalisation instead of the current 100 stocks in the KLCI.
The main aim is to make the index easier to replicate. That is, investors tracking the benchmark index will now only need to buy 30 stocks, rather than having to own 100 different stocks. In addition to being a much larger basket, the latter is also more costly to maintain and some of the smaller stocks can be quite illiquid.
Statistics indicate that the smaller basket of stocks in no way undermines the index as a representative of the underlying market. Indeed, the largest 30 companies make up roughly 70% of the total market capitalisation for the local bourse — well in line with the percentage of market capitalisation for benchmark indices in key global markets.
In short, the FBM KLCI remains a good representative of the local bourse while being a significantly more manageable basket of stocks.
