Wednesday, June 17, 2009
FTSE Bursa Malaysia 30 - Important Posting
Bursa and FTSE, or rather Financial Times, have been trying to make everyone use the FBM indices instead of the EMAS and KLCI. I guess FT would be able to earn fees for anyone using the new indices. One may argue on better computational and calculation ability by FT, or better market acceptance, or better marketability, etc... still somebody is forcing the thing down our throats.
Safe to say that despite Bursa and FT efforts, the media and investors by and large still preferred to quote KLCI and the EMAS, hard to retrain old dogs. In a move that almost is akin to raising the white flag, the 'twins' also put out the FBM KLCI index... hello, if there is nothing wrong with KLCI, why do we need to have FBM in front of the KLCI??? Its like putting MahSing MAS onto the planes should Mah Sing buys MAS - you can, but its stupid.
This posting will probably be worth hundreds of thousands if I were to speak at a conference or closed door seminar for professional investors. I should really open a bank account for donations to compensate myself.
Now they have tweaked the thing even tighter by putting up FBM 30, which is FTSE Bursa Malaysia Large 30 Index. Now the smart thing was to put all FBM 30 into FBM KLCI as well. One can argue that the CI is most widely followed by international investors, plus Malaysians and Singaporeans in particular. It is also the futures which the index is based on. Many older index funds use the KLCI as a benchmark for weighting their positions.
The biggest drawback of the KLCI is that many of the component members are illiquid and may have little in free float - that makes for difficult hedging, indexing and replication for ETF purposes. Like it or not, we will have two indices that we all will follow in the end, the KLCI will continue to be numero uno (don't believe me, try taking down the KLCI and hear the complaints) ... however smart investors would do well to pay heed to the FBM 30 index because those top 30 stocks will get better recognition and investors' interest. I see newer ETFs to relicate the FBM 30 rather than the KLCI type of indices. Its easier, cheaper, more accessible and plainly smarter.
That said, these 30 stock swould be accorded a premium to the rest of the smaller CI stocks. The premium is justified and will even grow when more country ETFs are introduced. Heck, I even think eventually there will be a FBM 30 futures index trading side by side the KLCI futures. The 30 stocks are better recognised, easier to replicate, better in transparency and liquidity ... heck even the Dow Jones index is only made up of just the 30 largest traded companies in the US.
As these stocks will be accorded higher premiums, it is good to take note of them. But not all dogs are created equal. Some will have a bigger premium because their fundamentals are better, or because they have better free float (the index rewards stocks with better liquidity).
For private investors who are the buy and hold types. These 30 may be a good starting to choose from as the premiums accorded to them is an added bonus.
Economists and strategists just have to make a note on the composition of the FBM 30 as to whetehr they are a good reflection on the real economy. Government leaders have to learn to interpret these indices before making broad strokes conclusions about the health of the overall economy and industries. The FBM 30 is tilted heavily to banks and financials, plantations, utilities and gaming. The FBM 30 is underrepresented in transportation, logistics, conglomerates and oil & gas.
p/s photos: Stefanie Sun Yan Zi