You and Me and The Index Named KLCI

KLCI moves fast and stocks you are holding moves very, very slow, right?

KLCI moved a lot and stocks in your portfolio moved a bit, right?
Then you curse on the KLCI, right?
You are not alone.

I have been asking KLSE participants (investor, trader, punter, remiser, dealer, D.I.Y. analyst) on FBM KLCI compared to old KLCI for the last few weeks. They have a common opinion, "FBM KLCI moves fast" . Those I asked are not fund managers or those dealing with fund managers. They are retail participants and most remisers also deal with retail participants. So, it is not really a surprise that they are not really fond of the new KLCI. Not that they love old KLCI in the first place but they just prefer the good old KLCI.
Why KLCI is important to us? Why not we simply go for other indexes such as FBM100 or FBMEmas?

Checking the index is like checking your portfolios status. Ask your fellow traders, watch the news, read the newspaper, you can easily get the what is the index of the day. When we are informed at lunch time or by evening TV news that  the index gained,  we can reasonably expect our stocks position also gained (at least a bit). We like to have index that 'reflects' our stocks positions even though we are not holding any index-linked counters. Not just day to day monitoring, unit trust investors also monitor the stock market time to time. It is a casual way of monitoring the stock market.

In short, KLCI is our instrument to 'feel' the pulse of the stock market.
Now, your 'feel' could be (already) skewed. 

Five counters have about 55% weightage of KLCI. Half  KLCI gain/loss is because of those 5 counters. True, those five counters could cancel each other on gain/loss but very likely they move in-synced together and so far they seem very good in team working. So, remember when you seeing KLCI, you are seeing those power 5 counters:  Commerce, Public Bank, Sime, Maybank and Tenaga.

Datuk Yusli conveniently said,  "FBM KLCI meant for oversea fund manager". That is, KLCI is NOT  meant for us, the retail participants. Yes, nobody forced us to take KLCI as instrument to 'feel' the market. But after all these years, just like smoking, it is a hard habit to break.

Furthermore we still been shoved everyday with FBM KLCI in the local TV news, in newspaper, in market analysis. You just can't escape KLCI. Just like on the Independence Day, you can't escape the parade. People, TV and newspaper  still talking the overall KLSE in term of KLCI performances. What they don't realized when they talking KLCI, they are about referring  to those five counters' performance. Everybody in mass-media addicted to KLCI.

We also hate it when KLCI moved 120 pt last week, on the news they said "See, foreign investor have confidence in our economy." Or 'That was a good super bullish week for KLSE".  And your portfolio hardly moved. Half of KLSE performance actually the net performance of those 5 counters.

How about the fact that half of the index only show net performance of FINANCIAL and PLANTATION sectors. If you go for construction or property sector's counters, they can way be skewed from KLCI. What does exactly FTSE standard say about SECTOR representation?

If there are 5 weightage-powered counters, shouldn't each counter selected at least representing different sectors? Then we have 5 sector represented. They reflect overall market better than just two sectors. BTW, if you asking for CONSTRUCTION sector to be presented in those power 5, you are asking too much because there is NOT even one single construction counter in KLCI's 30 components stocks, leave alone in the top 5 or 10 weightage counters.  Building materials, construction, hotels, insurance, property, timber and technology are NOT represented AT ALL in KLCI.

Bursa Malaysia  already addressed this issue. According to Datuk Yusli, KLCI changed from an economic barometer that must have all the key sectors represented to a market barometer that measures performance based on the market capitalization of the stocks. This is a hard fact we should know because so long stock market generally accepted as one of economic indicator (to a certain extend it is very true). Stock market in many ways are actually try to anticipate  the economic's future, maybe 3 to 6 months or 1 year  down the road. With FBM KLCI, the value of it as economic indicator will diminished.

We need to listen to Datuk Yusli,  "FBM KLCI meant for oversea fund managers". And we are not oversea fund manager. Need to get familiar with other FBM Indexes.

FBM KLCI weightage and float at KLCI component