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Key Takeaways
Highlights
- Bursa and FTSE Russell jointly announced yesterday plans to widen the
number of constituents for the FBMKLCI index from 30 to 50 constituents,
creating a more sectorially diverse and economically representative index.
- Concurrently, the FBM70 will be reduced from 70 to 50 constituents and
renamed the FTSE Bursa Malaysia Mid Cap Index from 21 Dec 26, while the
FBM100 will remain unchanged.
- Implementation will occur in two phases to facilitate orderly portfolio
rebalancing and minimise concentrated trading flows and market impact.
- Our impact assessment suggests only modest impact from Malaysian equity
index-linked portfolio fund outflows (negatively impacting incumbent index
components) and inflows (positively impacting new entrants).
Analysis
- No dramatic impact is expected. While some sector weightings could fall
should FBM50 replace FBMKLCI as Malaysia’s equity index benchmark (ie,
financials), we estimate that only about US$1b of passive/index funds
(representing about 5% of the estimated passive funds invested in Malaysian
equities) directly track the FBMKLCI (Bloomberg data suggests that the index
equity funds predominantly track MSCI indices).
- Sector weighting impact. Based on a simulation using market data as at 20
Aug 26 (see overleaf chart and table), the weighting of financial stocks could
fall to 39.4% (from Phase 1 implementation) and 36.5% (upon Phase 2
implementation) from 42.7%, while utilities may decline to 13.7% (upon
Phase 2 implementation) from 16.7%. Among the existing KLCI sectors,
construction and consumer could gain the most with their weightages rising
from 3.7% and 2.6% respectively to 4.8% and 3.6% respectively. Otherwise,
technology would be the biggest winner of the new additions, commanding
an estimated 3.4% weightage in the expanded index.
- Sector losers. Sector-wise, losers are banking (-6.2ppts), utilities (-3.0ppts)
and manufacturing (-0.5ppts), potentially prompting passive funds to dilute
existing positions.
- Modest stock losers. Listed Petronas subsidiaries, Maybank and Axiata
would see the most downside as the new additions would dilute their
weightage by an estimated 1-3ppts. However, downside is marginal at only
0.2%-0.3% of their respective market capitalisation, based on the assumption
that only about US$1b worth of passive funds are linked to the FBMKLCI.
- Sector winners. Sectorial representation will widen from 11 sectors to 16 as
technology (3.4% weightage), automobiles (1.3%), REITs (1.2%), ports
(0.9%), and gaming (0.4%) are included (refer to pie chart below). Besides
this, other noteworthy sectors which are currently represented in the
FBMKLCI index include construction, consumer and property.
- Stock inclusion winners. Noteworthy additions include Westports, Hong
Leong Financial Group, United Plantations, KLCCP Stapled Group as well
as the large-cap technology names (eg. Vitrox, MPI, Frontken, Inari) which
will gain benchmark representation and could attract passive fund inflows
from FBMKLCI-linked funds. Meanwhile, the phased inclusion – 50% in Dec
26 and the remainder in Jun 27 – should create two rounds of buying and
improve liquidity, institutional visibility and valuation discovery.
Highlights
- Bursa and FTSE Russell jointly announced yesterday plans to widen the
number of constituents for the FBMKLCI index from 30 to 50 constituents,
creating a more sectorially diverse and economically representative index.
- Concurrently, the FBM70 will be reduced from 70 to 50 constituents and
renamed the FTSE Bursa Malaysia Mid Cap Index from 21 Dec 26, while the
FBM100 will remain unchanged.
- Implementation will occur in two phases to facilitate orderly portfolio
rebalancing and minimise concentrated trading flows and market impact.
- Our impact assessment suggests only modest impact from Malaysian equity
index-linked portfolio fund outflows (negatively impacting incumbent index
components) and inflows (positively impacting new entrants).
Analysis
- No dramatic impact is expected. While some sector weightings could fall
should FBM50 replace FBMKLCI as Malaysia’s equity index benchmark (ie,
financials), we estimate that only about US$1b of passive/index funds
(representing about 5% of the estimated passive funds invested in Malaysian
equities) directly track the FBMKLCI (Bloomberg data suggests that the index
equity funds predominantly track MSCI indices).
- Sector weighting impact. Based on a simulation using market data as at 20
Aug 26 (see overleaf chart and table), the weighting of financial stocks could
fall to 39.4% (from Phase 1 implementation) and 36.5% (upon Phase 2
implementation) from 42.7%, while utilities may decline to 13.7% (upon
Phase 2 implementation) from 16.7%. Among the existing KLCI sectors,
construction and consumer could gain the most with their weightages rising
from 3.7% and 2.6% respectively to 4.8% and 3.6% respectively. Otherwise,
technology would be the biggest winner of the new additions, commanding
an estimated 3.4% weightage in the expanded index.
- Sector losers. Sector-wise, losers are banking (-6.2ppts), utilities (-3.0ppts)
and manufacturing (-0.5ppts), potentially prompting passive funds to dilute
existing positions.
- Modest stock losers. Listed Petronas subsidiaries, Maybank and Axiata
would see the most downside as the new additions would dilute their
weightage by an estimated 1-3ppts. However, downside is marginal at only
0.2%-0.3% of their respective market capitalisation, based on the assumption
that only about US$1b worth of passive funds are linked to the FBMKLCI.
- Sector winners. Sectorial representation will widen from 11 sectors to 16 as
technology (3.4% weightage), automobiles (1.3%), REITs (1.2%), ports
(0.9%), and gaming (0.4%) are included (refer to pie chart below). Besides
this, other noteworthy sectors which are currently represented in the
FBMKLCI index include construction, consumer and property.
- Stock inclusion winners. Noteworthy additions include Westports, Hong
Leong Financial Group, United Plantations, KLCCP Stapled Group as well
as the large-cap technology names (eg. Vitrox, MPI, Frontken, Inari) which
will gain benchmark representation and could attract passive fund inflows
from FBMKLCI-linked funds. Meanwhile, the phased inclusion – 50% in Dec
26 and the remainder in Jun 27 – should create two rounds of buying and
improve liquidity, institutional visibility and valuation discovery.
Analyst
Analyst
Analyst
Key Takeaways
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This report is provided subject to, and must be read together with, the full Disclosures / Disclaimers available at this link, which are incorporated by reference into this report. In particular, this report is intended for general circulation and informational purposes only and does not constitute personal investment advice or a recommendation to buy or sell any investment product or security. You should independently evaluate the information and, where necessary, seek advice from a qualified financial adviser regarding the suitability of any investment. Analyst certifications required under applicable regulations, including SEC Regulation AC (where relevant), are included in this report. By accessing, receiving or using this report, you acknowledge that you have read, understood and agreed to be bound by the Disclosures / Disclaimers, as may be amended, supplemented or updated from time to time.
