Being shortlisted for the Composite Index can drive stock prices to invest in “quasi-blue chip stocks” and need to be quick and accurate

Jungle lee wrote a column · Apr 2 20:50

The 20 “quasi-blue chip stocks” will actually generate a lot of attention from investors. However, market participants believe that as long as they have enough catalysts, being selected for the FTSE Composite Index constituent stocks can indeed greatly increase their appeal; however, including all of these “composite index candidate stocks” in the investment portfolio is not a wise choice.

Wu Junsheng, head of research and retail research at Hong Leong Investment Bank, pointed out in an electronic interview with “Nanyang Commercial Daily” that in fact $FTSE Bursa Malaysia KLCI Index(.KLSE.MY)$The list of constituent stocks in the Composite Index is reviewed every six months, and once eligible, they will only be included.

According to regulations, constituent stocks must have a free circulation rate of at least 15% and sufficient liquidity. Liquidity is calculated based on the median monthly daily trading volume of the stock.

In addition, the composite index's constituent stocks also use a system to eliminate the weak and stay strong. If the market capitalization ranks 25 or above, and the circulation rate is sufficient, they can basically be squeezed into the list of composite index constituent stocks.

He said that this strategy is actually also a widely spread strategy in the market, because some funds can indeed only buy the top 30 blue-chip stocks. Once they fall out of the constituent stocks, they will need to divest their shares and then buy newly added shares.

“Based on this alone, most investors will use the same strategy to follow up on purchases, hoping that the fund will seek an opportunity to raise the stock price and then sell at arbitrage.”

Sunway's entry into the game is in sight

However, he also warned that individual funds can buy specific shares in large amounts without any restrictions, so it is likely that it is unprofitable to wait until the timing of entering the constituent stocks is clear before entering the market.

“Like $SUNWAY(5211.MY)$The company's stock price has soared, and the market capitalization has reached 24th place. It can be said that it is not very difficult to enter the constituent stocks.”

“However, at this stage, the company's stock price already reflects current favorable factors. In other words, large sums of capital have already been deployed and purchased at low prices. Entering the market at this stage may require taking certain risks.”

“Of course, the main reason why Sunway is attracting attention is that the company has a good platform, good construction and development performance, and its healthcare business is expected to be split and listed in 2027. At that time, the valuation is expected to reach RM22.4 billion to RM28.9 billion, which is successfully transformed into a driving force for higher stock prices.”

Don't look for a needle in a haystack

When asked how to find opportunities in 20 “quasi-blue chip stocks,” Wu Junsheng said that 20 “quasi-blue chip stocks” plus the top 30 blue-chip stocks, there are a total of 50. Looking for opportunities among the 50 is undoubtedly a haystack, making it difficult to profit.

“If you want me to say, in fact, we only need to focus on the 25th to 35th stocks; we can reduce our attention to the others as appropriate.”

As for him, he also mentioned that if other “quasi-blue-chip stocks” meet the requirements for stock selection, investors can naturally adopt a more aggressive strategy; because under the double incentive of a good company, good stocks, and the possibility of entering blue chip stocks, it can drive a stock to rise more violently.

So-called good stock selection conditions include that the company has good fundamentals, excellent management, and a long-term commercial plan.

“This will turn into fuel to drive stock prices when implementing any corporate plan.”

He said that this is why Sunway has been able to repeatedly push its stock price to new highs when it is full of momentum. However, he pointed out that due to the limited capacity of retail investors, funds are usually deployed based on catalysts, but the deployment strategy takes a while to see results, and then the stock price is maintained at a certain level through large purchases.

Notably, in December of last year, Dale Group (DIALOG, 7277, Motherboard Energy) and Westport Holdings (WPRTS, 5246, Main Board Transportation and Logistics) were removed from the FTSE Index and replaced by Yang Zhongli Agency (YTL, 4677, Motherboard Utilities) and Yang Zhongli Electric (YTLPOWR, 6742, Motherboard Utilities)!

Although Dale Group and Westport Holdings were kicked out, they remain on the Composite Index candidate list.

Reviewed every six months

In addition, the list of candidates for other comprehensive index stocks also includes $GAMUDA(5398.MY)$、 $INARI(0166.MY)$, and $AIRPORT(5014.MY)$。

The list of constituent stocks of the Composite Index is reviewed every six months. The review month is set for May, then there will be changes after the market closes on the 3rd Friday of June.

Being shortlisted for the Composite Index can drive stock prices to invest in “quasi-blue chip stocks” and need to be quick and accurate

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source:Nanyang Siang Pau, Klse Pulse