INVESTORS need to be aware of the influence of the biggest five constituents of the incoming benchmark FTSE Bursa Malaysia KLCI (FBM KLCI), which will replace the Kuala Lumpur Composite Index (KLCI) come July 6, RHB Research said.
Based on June 26 closing prices, the top five stocks on the FBM30 — Bumiputra-Commerce Holdings Bhd, Public Bank Bhd, Sime Darby Bhd, Malayan Banking Bhd and Tenaga Nasional Bhd — commanded 47.3% of the index. This implied a "significant influence on the index's movements", RHB said in a note on Tuesday.
"Closer analysis indicated that the top five often accounted for more than 50% of the index's daily movement (ie more than their index weighting). On certain days, the combined attributed change was more than the change for the index," RHB added.
"Between June 19 and 26 (except for June 23), the implied FBM KLCI would have marginally outperformed the KLCI. Given the limited data, this may just be coincidence but in any case, investors tracking the FBM KLCI need to be aware of the power of the big five," RHB said.
RHB's "back-testing" using FBM30 data for the month of June indicated 97.5% correlation to KLCI.
"Given our analysis above, we believe there could be more volatility ahead, especially if the government announces more liberalisation of the banking sector, incentives for the plantation sector, or an electricity tariff review for TNB.
RHB's value picks in the FBM KLCI include AMMB Holdings Bhd (RM4.29 target price), Kuala Lumpur Kepong Bhd (RM14.90), TNB (RM10.30) and Tanjong plc (RM19.10).
"Nevertheless, we believe any pull-back in the market would be an opportunity to accumulate highly-rated stocks regardless of whether they are in or out of the FBM KLCI," RHB added.
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