KUALA LUMPUR (May 13): RHB Investment Bank (RHB IB) Research said that based on the latest market capitalisation rankings of eligible stocks, Sunway Bhd (KL:SUNWAY) is ranked at 24 and will be eligible for inclusion into the list of component stocks of the FBM KLCI if the ranking remains at the cut-off date.

In a strategy note on Monday, the research house said this will be at the expense of AMMB Holdings Bhd (KL:AMBANK) — the lowest ranked composite index stock in terms of market cap.

RHB IB said that according to the ground rules of the FTSE Bursa Malaysia Index Series, a security would be deleted if its market cap ranking among eligible securities drops to 26 or lower.

It said a security would be inserted into the FBM KLCI at the periodic review if its ranking by full market value rises to 25 or higher.

“Based on the latest market cap rankings of eligible stocks, we note that Sunway, which ranks at 24 by full market capitalisation, is eligible for inclusion into the benchmark index and will likely replace the lowest ranked constituent stock, AmBank.

“However, the market capitalisation gap between Sunway and the 26th ranked stock (Sime Darby Bhd [KL:SIME]) is only about RM800 million, which could easily alter the predicted constituent stock changes with some share price volatility in the coming fortnight,” it said.

The research house said that if AmBank stays at 35 or higher and Sunway falls to 26 or lower, then there will be no change to the index constituent stock list.

RHB IB kept its positive stance on the outlook for equity markets on the back of its house view for a resilient US economy, gradual recovery in China’s macroeconomic fundamentals, the prospect for easing interest rates from peaking inflationary pressures, better domestic political stability, and a gradual roll out of economic and fiscal reform initiatives.

The research house said foreign equity ownership has troughed, raising the prospects for a pick-up in foreign interest, coupled with a greater quantum of trapped liquidity from local funds switching into a more domestic-centric investment strategy.

“Key risks include geopolitical eruptions and stubborn inflation leading to fewer and delayed US rate cuts.

“Focus on beneficiaries of the key growth hubs in Johor, Penang and Sarawak with a trading slant.

“We have 'overweight' calls on the property, construction, technology, healthcare, transport, oil and gas, utilities, and rubber products sectors,” it said.