Below is I believe the last statement or info by Bursa Malaysia itself before FTSE Bursa Malaysia officially launched:
New method to keep up with global standards
FTSE Bursa Malaysia KLCI, based on a new methodology for the country’s benchmark index, will address the issues of tradability, investability and transparency once it is launched on July 6. This is the last of a two-part article by Bursa Malaysia on
WHILE traditional market capitalisation-weighted index methodology used by the KL Composite Index (KLCI) is widely accepted and understood by investors, areas for improvement were also considered.
Among the most frequently cited requirement from investors is the need to identify tradability and investability of constituents. Investors did not have on hand the information if the shares held by the country’s benchmark index big-cap constituents could be bought or sold at any time. This concern takes precedence among global investors when volatility becomes a common characteristic of the market.
To address this concern, the country’s benchmark index will adopt a global index calculation methodology provided by leading index provider, FTSE Group.
Starting July 6, 2009, the enhanced benchmark index for the local equity market, the FTSE Bursa Malaysia KLCI, will be based on free-float market capitalisation methodology and its constituents will be liquidity-screened.
Instead of tracking 100 stocks as held in its predecessor, the FTSE Bursa Malaysia KLCI is made up of the 30 largest listed companies by market value, with at least a 15% free float. A free-float based index is regarded as a better benchmark than a traditional market capitalisation-weighted index as the former only considers the number of shares in each company that is publicly available for trading.
Constituents of the FTSE Bursa Malaysia KLCI have to also pass a liquidity screen whereby selected companies must have a minimum 10% annual turnover of free-float shares. This liquidity screening is essential for investors to trade in and out of stocks at will.
These familiar and accepted index calculation methodologies are in fact applied across many markets and asset classes.
The FTSE Bursa Malaysia KLCI is calculated and managed in accordance to publicly-available ground rules and based on specific ratios – size, free float and liquidity. This allows companies that are currently excluded to work towards being included in the benchmark index in the future.
Besides investability and tradability, two other issues that must also be addressed by an index in order to be considered useful and relevant are representation and replication.
The tightly designed FBM KLCI holds a much smaller number of companies compared with the KLCI but its constituents are prime market movers and represents about 60% to 70% of the main board’s market capitalisation.
This ensures the FTSE Bursa Malaysia KLCI‘s suitability as a barometer for Malaysia’s equity market while being a perfectly replicable portfolio of stocks.
Retail investors that pick stocks can use the FTSE Bursa Malaysia KLCI as the initial filter to identify the country’s biggest-capitalised stocks that have passed the free float and liquidity screen.
Meanwhile, product issuers would find 30 constituents easier as a base rather than 100. This facilitates development of more index-linked products such as exchange traded funds, options, warrants and index-tracking unit trust which is beneficial to the investing community as investors can easily create and maintain a low-cost, diversified and liquid equity portfolio.
Existing financial products based on FTSE Bursa Malaysia Large 30 Index or the KLCI, such as the FBM30etf, KLCI Futures and the KLCI Options will adopt the FTSE Bursa Malaysia KLCI as its underlying index from July 6, 2009.
The actual transition of the KLCI to the FTSE Bursa Malaysia KLCI would be seamless as the opening value for the FTSE Bursa Malaysia KLCI is based on the KLCI closing value today.
However, investors who rely on momentum and market “pulse” would notice an increased speed in the calculation of the FTSE Bursa Malaysia KLCI’s index values as it is on a 15-second basis as opposed to the KLCI’s 60-second basis.
The advantages and features of the FTSE Bursa Malaysia KLCI put the local benchmark index on par with its global peers.
While meeting the needs of foreign investors, the FTSE Bursa Malaysia KLCI along with other indices in the FTSE Bursa Malaysia series would benefit local investors by providing a platform for robust investments products and more importantly, a varied selection of investment options covering different asset classes and themes.
This article is contributed by Bursa Malaysia and FTSE Group
Original articles link:: Bursa Malaysia announcement: the star 3rd July 09
Also Bursa Malaysia's earlier statement: the star18th April 09 and 22nd Jan 09 (outdated but you can go there if you are longing to see photo of Datuk Yusli Mohamed Yusoff talking with and FTSE Group Asia Pacific MD Paul Hoff)
Also Bursa Malaysia's earlier statement: the star
