PSE reconstitutes indices

MANILA, Philippines - Broadcast giant GMA Network Inc. and energy firm Aboitiz Power Corp. (APC) are the two new entrants to the Philippine Stock Exchange’s (PSE) elite roster of listed companies in the PSEi, the main index of overall stock market performance.

The PSEi consists of the country’s 30 most traded, most liquid and well-capitalized firms representative of the industrial, properties, services, holding firms, financial and mining and oil sectors.

The changes will be effective on May 4 following the bourse’s regular review of its main and sectoral indices. The last time the PSE changed the composition of its main index was in November 2008.

With the entry of GMA and APC, Petron Corp. and Union Bank of the Philippines were dropped from the blue chip index due to the power retailing giant’s failure to comply with the 10 percent minimum public or free float level.

On the other hand, UnionBank was replaced in the index after its average daily value turnover fell below the P5-million requisite.

“The liquidity criterion remains our most stringent condition for companies to qualify into the PSEi. In the recent review, however, we also see the free float requirement playing a critical factor,” said PSE president and chief executive officer Francis Lim.

The public or free float requirement was introduced in 2006 when the bourse overhauled its criteria for inclusion in the PSEi. The shift to a free float capitalization weighted index serves as an incentive for companies that are more widely held by the public because companies with higher free float levels have a better chance of making it in the PSEi.

In terms of sector indices, all sectors except for the industrial index will reflect a decline in the number of member-companies due to the slowdown in trading activity in 2008. One of the requisites for inclusion in the sector indices is a minimum P1 million daily average trading.

In terms of the financial index, only one company, Export and Industry Bank Inc. will be added to the list while three will be removed, namely Bankard Inc., Sun Life Financial Inc. and Vantage Equities Inc.

After the changes are made, the financial index will consist of 13 companies from the existing 15 firms.

On the other hand, companies that will be added to the industrial index are Pepsi-Cola Products Phils. and San Miguel Brewery Inc. which both underwent initial public offerings in 2008, and TKC Steel Corp. These firms will replace Phoenix Petroleum Phils. Inc. Roxas Holdings Inc., and Vulcan Industrial & Mining Corp. A total of 22 firms will comprise the industrial sector index after the recomposition is implemented.

The holding firms sector will decrease to 13 companies from the present 18, after five companies will be dropped from the list. These are Abacus Consolidated Resources & Holdings Inc., Alcorn Gold Resources Corp., Filinvest Development Corp., Sinophil Corp. and Wellex Industries which will be removed from the list.

A total of 11 companies will be stricken off the property index namely Belle Corp., Crown Equities Inc., Cebu Holdings Inc., Ever-Gotesco Resources & Holdings Inc., Fil-Estate Land Inc., Metro Pacific Inc., MRC Allied Industries Inc., Philippine Estates Corp., Philippine Realty & Holdings Corp., Sta. Lucia Land, Inc. and Uniwide Holdings Inc.

After the changes, the property index will consist of 10 firms from the present 21.

Meantime, Diversified Financial Network Inc., Island Information & Technology Inc. and Macroasia Corp. will no longer be part of the services index by May 4. The services index will total 17 firms by May 4 from the existing 20.

Six companies will also be dropped from the mining and oil index, namely Apex Mining Co. Inc., Abra Mining & Industrial Corp., Basic Energy Corp., Dizon Copper-Silver Mines Inc., Semirara Mining Corp. and United Paragon Mining Corp., thus reducing the index to 12 companies from the present 18.

Companies were removed from the sectoral indices due to their failure to meet liquidity and tradability requirements.

The tradability criterion requires a company’s shares to be traded at least 75 percent of the total days that it is eligible for trading.

To be included in the PSEi, which is a basket of select 30 stocks, a listed company must satisfy five criteria – the free float level, liquidity, volume turnover, tradability and free float market capitalization.

Free float refers to the issued and outstanding shares of a listed company that are not held by strategic partners and owners. Hence, free float shares are freely tradable among non-strategic investors in the public. As approved by the PSE board, the free float portion should represent at least 10 percent of the outstanding shares of listed stock.

In order to pass the liquidity criterion for the main index, a stock must have an average daily value turnover of not less than P5 million during a period under review to be considered for index inclusion or retention.

The volume turnover criterion prescribes that the total volume of the company’s shares traded must at least be 10 percent of its free float shares.

By tradability, during any given period under review, a stock must be traded at least 95 percent of the total trading days to qualify for PSEi inclusion.

Free float market capitalization is computed using the volume weighted average price of a listed stock during a particular review period. Companies that pass the first four criteria are ranked from highest to lowest based on free float-adjusted market capitalization.  The top 30 in terms of free float market capitalization are included in the PSEi.

“It is important that we regularly update the composition of the indices to ensure that they appropriately capture the performance of sectors they represent. We believe the updates we made in the composition of the index helped us attain this as they take into account the impact of the global economic slowdown on the trading activity of some listed companies,” Lim said.