Research Houses Positive On FBM KLCI Expansion To 50 Constituents
KUALA LUMPUR, Aug 21 (Bernama) -- Research houses are positive on the expansion of the FTSE Bursa Malaysia KLCI (FBM KLCI) from 30 to 50 constituents, believing that the move would provide broader market representation and greater sector diversification.
In their research notes today, CIMB Securities Sdn Bhd, Apex Securities Bhd and Hong Leong Investment Bank (HLIB) highlighted the benefits of the expanded benchmark, including improved market representation and greater sector diversification.
The expansion will be implemented in two phases, with the 20 new constituents introduced at 50 per cent of their eventual index weights on Dec 21, 2026, before reaching full weight on June 21, 2027.
CIMB Securities is positive on the expansion, as it should provide a more representative benchmark for the Malaysian equity market, reduce concentration in the existing large-cap sectors and increase representation across a broader range of industries.
“Based on our simulation using share prices as at Aug 20, 2026, expanding the FBM KLCI to 50 constituents would reduce the weight of financial services to around 36.8 per cent from 42.8 per cent and that of utilities to 15.8 per cent from 18.8 per cent, while increasing representation and weightage across real estate, industrials, energy, consumer, and technology.
“At the stock level, potential new constituents should benefit from index-related buying, improved institutional visibility, and potentially higher trading liquidity,” it said.
CIMB Securities estimates that the 20 new constituents could account for 15.6 per cent of the expanded KLCI, diluting the combined weight of the existing 30 constituents to 84.4 per cent from 100 per cent currently.
Meanwhile, Apex Securities viewed the reform as structurally positive because the current KLCI is materially more concentrated than the broader market, with banks accounting for 43.1 per cent of the index compared with 31.1 per cent in the FBM EMAS, while utilities account for 16.4 per cent versus 12.2 per cent.
“We expect technology and construction to be among the key sector beneficiaries, while the increased breadth of the index should also improve the visibility of selected large-cap names outside the traditional banking-heavy benchmark,” it added.
It said technology is the clearest example: the sector has 53 Main Market constituents and RM103.35 billion of market capitalisation as at end-July, yet carries a zero per cent weight in the current KLCI.
Similarly, construction has 52 constituents and RM62.86 billion of market capitalisation, but accounts for only 3.5 per cent of the KLCI’s overall weighting.
The eventual inclusions and weightings will come into focus heading to December, while June provides a second rebalancing point as the new constituents reach their full weightings, it said.
“This should create an extended period of potential flow support for selected entrants, although it also increases the risk that some of the expected benefit is priced in before the actual implementation,” said Apex Securities.
Meanwhile, HLIB said the expansion of the KLCI’s constituents from 30 to 50 would increase the bellwether index’s market capitalisation to RM1.48 trillion from RM1.24 trillion and raise its share of Bursa Malaysia’s total market capitalisation to 70.9 per cent from 59.4 per cent.
It said the expanded KLCI would also see more sector representation, with automotive, gaming, real estate investment trusts (REITs), ports and technology now being featured.
“Among the earlier-mentioned new sectors that will be represented in the KLCI post-expansion, we note that technology appears to be the biggest winner, achieving a weight of 1.9 per cent in Phase 1 and 3.4 per cent in Phase 2, compared to nil currently.
“For existing sectors already present in the KLCI, construction appears to be the largest gainer, with its weight increasing by 82 basis points to 151 basis points, based on our calculations.
“Our projections show that the most notable decline in weights will come from banking (-338 basis points to -621 basis points) and utilities (-140 basis points to -257 basis points),” it said.
However, HLIB said the two-phase implementation could prolong a possible transitory overhang window for the existing 30 KLCI constituents, as investors may not be inclined to add positions to these stocks given the inevitable weight reduction over the two phases.
“We estimate that the cumulative weighting of the KLCI’s existing members would be diluted from 100 per cent currently to 91.3 per cent in Phase 1 and 84 per cent in Phase 2,” it said.
-- BERNAMA