Published June 18, 2009

New KL index to lift bank, betting, power stocks

These sectors will see biggest jump in industry weightings

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(KUALA LUMPUR) Malaysia's finance stocks, along with betting and power companies, will benefit most when the Kuala Lumpur Composite Index is replaced by a new benchmark gauge next month, CIMB Investment Bank Bhd said in a report.

The three sectors will be the biggest winners in terms of the jump in industry weightings in the FTSE Bursa Malaysia KLCI, which will be known as the FBM KLCI, the report said yesterday.

'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,' Terence Wong, an analyst at CIMB, said in the report. 'The concentration on quality could push up' the new gauge, 'especially if foreign funds return to Malaysia in a big way,' he said.

Bursa Malaysia Bhd, the country's stock exchange manager, will cut the number of companies in its Kuala Lumpur Composite Index to 30 from 102 on July 6, in the measure's biggest overhaul aimed at removing the smallest and most tightly held companies to attract investors.

The Composite Index has climbed 22 per cent this year, the worst performer among South-east Asian benchmark indexes even after Prime Minister Najib Razak, who took office on April 3, announced stimulus plans valued at RM67 billion (S$27.6 billion).

While studies by the stock exchange indicate the direct impact on indexed funds will be minimal, the 'psychological impact could be substantial,' Mr Wong said. 'In our ongoing global road-show, investors show interest in the new index and want to know which companies stand to gain.'

The FTSE Bursa Malaysia KLCI will comprise the largest companies by market value with at least a 15 per cent free float, which is based on the number of shares publicly available for trading.

In 'rejigging' the index, the weightings in finance will increase to 34 per cent from 25 per cent while gaming will rise to 10 per cent from 6 per cent and power 11 per cent from 8 per cent, Mr Wong said. Bank and plantation stocks will have a combined weighting of 55 per cent in the revamped index.

The three biggest stocks on the new gauge will be Bumiputra-Commerce Holdings Bhd and Malayan Banking Bhd, the country's two biggest banks, and Sime Darby Bhd, the No 1 palm oil producer, the report said.

Casino operator Resorts World Bhd, energy company YTL Power International Bhd and Parkson Holdings Bhd - three stocks that are not in the Composite Index - will gain from the inclusion in the FBM KLCI, he said.

Investor 'favourites' such as IJM Corp, Gamuda Bhd and SP Setia Bhd will not be included in the new index, according to the report. Stocks in seven industries - building materials, construction, hotels, insurance, property and technology - will 'disappear from the radar screen altogether,' he added. -- Bloomberg