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Malaysia Mid-Caps To See “Selling Ahead Of New Index”

Posted on: July 2, 2009

Reuters – Monday, June 29

* New index changes expected to weigh on mid-cap stocks

* Top oil planters and lenders among components of new index

* New benchmark index scheduled to start July 6

KUALA LUMPUR, June 29 – Malaysia’s Gamuda <GAMU.KL> and IJM Corp <IJMS.KL> are among mid-cap stocks that may suffer selling pressure as tracker funds rebalance their portfolios ahead of the adoption of a new benchmark stock index next week.

Bursa Malaysia <BMYS.KL>, the country’s stock exchange operator, on July 6 is set to introduce the FTSE Bursa Malaysia KLCI as part of its effort to boost trading on the local bourse.

The new index will cover only 30 stocks, compared with 100 stocks currently. Banks and plantation stocks make up more than half of the index.

Bursa Malaysia unveiled the 30 component stocks on June 11 when it completed the first half-yearly review of the index.

Top oil palm planters Sime Darby <SIME.KL>, IOI Corp <IOIB.KL> and Kuala Lumpur Kepong <KLKK.KL> as well as top lenders Maybank <MBBM.KL>, Bumiputra-Commerce <BUCM.KL> and Public Bank <PUBM.KL> are among the 30 component stocks of the new index.

“The new index is quite heavy on banking and plantation stocks,” said Choo Swee Kee, Chief Investment Officer of TA Investment Management.

Fund managers who had previously benchmarked their performance against the old KLCI are expected to adjust their portfolios by selling off stocks that have not been included in the new index, said Choo.

“There may be some impact. The component stocks have been reduced to 30 from 100, so some 70 stocks or more than that need to be sold,” said the fund manager, who helps manage about 700 million ringgit at TA.

The market has started to price in the anticipated index changes — Gamuda shares have fallen 1.8 percent since the announcement, compared with the wider market’s <.KLSE> loss of 1.21 percent. IJM shares have slipped 1.72 percent.

“The new FBM KLCI benchmark is slightly controversial in that it only has 30 constituents versus 100 constituents of the old index ,” said Deutsche Bank in a research note last week.

“Big caps such as Sime Darby, Public Bank and Bumi-Commerce should be the biggest beneficiaries from a higher weighting under the FBM KLCI benchmark,” it said.

Under the new index, which requires all component stocks to have a minimum free-float of 15 percent, Bumiputra-Commerce will have a larger weighting than Sime Darby, currently the largest stock on the bourse by market value.

The new index will be updated every 15 seconds compared to every 60 seconds currently and the component stocks will be reviewed every six months, said Bursa.


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