The latest semi-annual review of the component stocks making up the FBM Index Series will be announced on 4 Dec and is effective beginning 22 Dec. Based on our appraisal of the list of stocks by full market capitalisation on the cut-off date (25 Nov), there are unlikely to be any changes to the component stocks in the FBM KLCI in the coming review. 

No change. Based on the FBM Index Series ground rules, a security will be deleted if its market cap ranking drops to 36th place or below. Meanwhile, a security will be inserted into the FBM KLCI at the periodic review if its ranking by full market cap rises to 25thplace or above. At the close of business on 25 Nov – the prescribed cut-off date for the December review – no non-component stock was ranked 25th or higher, while the lowest ranked stock was KLCC Stapled Group (KLCCSS MK, NEUTRAL, TP: MYR6.96) at No. 32. Accordingly, we do not expect any changes to the FBM KLCI component stocks in this review. 

Future changes. The proposed merger between RHB Capital (RHBC MK, NR) and CIMB Group (CIMB MK, NR) will result in the elimination of one security. The replacement will be a stock selected from the reserve list that will be decided by the FTSE Bursa Malaysia Index Advisory Committee. There are currently five stocks on the list, namely: i) Gamuda (GAM MK, BUY, TP: MYR5.61), YTL Power (YTLP MK NEUTRAL, TP: MYR1.69, Malaysia Airports (MAHB MK, BUY, TP: MYR8.04), UEM Sunrise (UEMS MK, TRADING BUY, TP: MYR2.52) and Bumi Armada (BAB MK, NEUTRAL, TP: MYR1.49). Of these stocks, Gamuda is the largest followed by YTL Power. Bumi Armada will likely drop off the reserve list, as it has declined to No. 43. Nestle (NESZ MK, NEUTRAL, FV: MYR67.00) is the highest ranked non-component stock at No. 28, but it is not likely to make it into the list due to liquidity concerns. 

Leaders and Laggards.The FBM KLCI has descended into negative territory for the year with a YTD decline of 1.5%. 14 component stocks outperformed the index while 16 underperformed. The best performing stock was Telekom Malaysia (T MK, NEUTRAL, TP: MYR6.10) with a 35.1% YTD gain. Petronas Dagangan (PETD MK, NR) was the worst performer, declining 46.1%. Generally the telecom, healthcare, utilities include oil & gas, banks, plantations, gaming and auto. We are cautiously optimistic on the prospects for the market in 2015. The global economic recovery remains intact, with improving growth outlooks for the developed economies, which will help to lift exports and GDP growth, while monetary policy will stay accommodative. Corporate earnings are also forecast to trend higher in 2015. Our stock Top Picks include Press Metal (PRESS MK, BUY, TP: MYR5.75), SapuraKencana Petroleum(SAKP MK, BUY, TP: MYR4.02) and Sunway (SWB MK, BUY, TP: MYR3.90).

Source: RHB