KLCI stocks to be reduced to 30

KUALA LUMPUR: Bursa Malaysia Bhd sees little trading disruption over its plan to trim down the KL Composite Index (KLCI) to 30 large and liquid stocks. The new primary index, called the FTSE Bursa Malaysia KLCI, will replace the existing one effective July 6.

The new market benchmark will adopt the outgoing KLCI closing value on July 3. This will ensure the KLCI price continuity since it was first introduced in 1986.

Bursa Malaysia chief executive officer Datuk Yusli Mohamed Yusoff said based on the exchange’s consultation with the industry, most index tracking fund managers were already focused on 25 to 30 counters that made up the KLCI.

“There would probably be some portfolio realigment by fund managers, but overall we see a smooth transition in the broader market,’’ he told a press conference yesterday.

FTSE Group Asia Pacific managing director Paul Hoff said based on the index company’s experience when introducing a new index elsewhere, there “would be some selling on affected stocks,’’ as index tracker funds adjusted their portfolio but the overall impact on the stock market was “minimal.”

Datuk Yusli Mohamed Yusoff (left) talking with and FTSE Group Asia Pacific MD Paul Hoff before the press conference.

The 30 constituents of the soon-to-be introduced FTSE Bursa Malaysia KLCI will be ranked primarily on share capital free float and will be similar to the existing FTSE Bursa Malaysia Large 30 index (FBM30).

It was observed yesterday that the top three companies on the KLCI were Sime Darby Bhd, Tenaga Nasional Bhd and Malayan Banking Bhd, while the top three companies ranked by free float were Public Bank Bhd, Sime Darby and Bumiputra-Commerce Holdings Bhd.

The top 30 companies represent 64% of the total market value, compared with 74% for the existing 100-strong KLCI.

Yusli said the six-month notice would provide adequate time for market players to make the necessary changes for the transition.

The new index nature of giving higher weightage to companies with higher number of shares available for trade as compared with size alone, he added, would also encourage public-listed companies, especially the bigger ones, to focus more on their existing capital structure.

“This will be an incentive for companies to increase their share capital free float,’’ Yusli said.

Exchange-traded products currently tracking the KLCI and FBM30 will move into the FTSE Bursa Malaysia KLCI. All KLCI futures and options contracts would also be subjected to changes in line with the transition of the underlying index, Bursa Malaysia said in a statement.

Bursa Malaysia engaged FTSE Group to develop a new set of Malaysian equity indices two years ago and the first set of modern indices was launched in June 2006.

On his outlook for the market, Yusli said sentiment on the local front was bogged down mainly by external developments.

“The condition remains very challenging, very volatile and I believe this will continue for a while,’’ he said.

Bursa Malaysia derived the bulk of its income from fees collected from trading of shares on the local exchange. The weak market was expected to have a big impact on its financial performance for the year ended Dec 31. The full-year results were expected to be out early next month.