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I must admit, I didn’t really pay much attention to the FBM KLCI transition.

But I’m enjoying the fruits of it now. Looking at the current rally, I’m sure glad I hung on to my AMMB and COMMERZ shares over the past few months. As you might recall, both these counters were in free fall with all the dooms day prophecies just a few months ago.

Now we have FBM KLCI and institutions are scrambling to re-weight their portfolios. Retailers and momentum players are following suit.

FTSE Bursa Malaysia KLCI
To recap, the FBM KLCI consists of the 30 largest eligible companies on listed on Bursa Malaysia’s Main Board, with at least 15% free float, and a minimum 10% annual turnover of free-float shares in the 12 months prior to an annual review each December.

In its recent report, CIMB Research wrote:

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. The net impact should be positive as big-cap liquid stocks with high free float also happen to be blue chips. This concentration on quality could push up the FBM KLCI, especially if foreign funds return to Malaysia in a big way. Theoretically, the market should be lifted by selling of the 70+ stocks no longer in the index and buying of FBM KLCI component stocks. We maintain our OVERWEIGHT stance and year-end KLCI target of 1,220 points.
(Source: Rijigging the KLCI II: 17 June 2009):

Take a look at the market…  this prophecy is being fulfilled before our very eyes.

It’s interesting to note the list of expected “Winners” and “Loser” from the FBM KLCI shuffle.

EXPECTED WINNERS
1. CIMB Research
- Main Winners: Bumiputra Commerce & Public Bank
- Other Winners: Sime Darby, Tenaga, Maybank, IOI Corp, Genting, Axiata, AMMB, Berjay Toto and UMW Holdings.
(Source: Rijigging the KLCI II: 17 June 2009)

2. Credit Suisse:
- Main Winners: Bumiputra Commerce & Public Bank
- Potential Winners, Resorts, YTL Power and Parkson
(Source: Malaysia Market Strategy, 10 June 2009)

3. OSK:
- Resorts, YTL Power and Parkson
(Source: Malaysia Equity Daily 12 June 2009)

EXPECTED LOSERS
1. CIMB Research
- The 73 companies that fail to make the cut (eg. AirAsia, Bursa Malaysia, EON Cap, Gamuda, IGB, IJM, KNM, Mah Sing, MRCB, SP Setia, Top Glove and WCT).
- The 15 big caps which have a drop in weightings due to their lower free float and liquidity (eg. RHB Cap, MAS, Petronas Dagangan, Petronas Gas, MISC, DIGI, PLUS, Hong Leong Bank, Astro and MMC).
(Source: Rijigging the KLCI II: 17 June 2009)

2. Credit Suisse:
- Construction, property, hotel and tech stocks do not feature in the current FBM30 components.
- Borderline entries such as MAS (30% free float), RHB Cap (18%) and Petronas Dagangan (30%).
 (Source: Malaysia Market Strategy, 10 June 2009)

3. OSK:
- Companies with low free-float such as the Petronas-linked ones and companies linked to Tan Sri Ananda Krishnan will lose out.
(Source: Malaysia Equity Daily 12 June 2009)

Just an observation… Public Bank’s share price recovery has been milder as compared to Bumi Commerce and AMMB which were hit harder. It seems RHB Research is now changing its stance, calling PBBANK an Outperform partly due to its large weighting gain in the FBM KLCI.