PSE reconstitutes main index

MANILA, Philippines - Two new companies – Metro Pacific Investments Corp. and China Banking Corp. - are joining the elite roster of blue-chip issues along with re-entrant ABS-CBN Broadcasting Corp., starting next week.

To be removed from the main composite index or the PSEi, which is considered the local market’s key barometer index, are DMCI Holdings Inc., First Gen Corp. and the Philippine Stock Exchange.

ABS-CBN will return as an index stock after being removed during a review of the PSEi in May 2009. The main composite index consists of the country’s 30 most traded, most liquid and well-capitalized listed firms.

“The review of indices continues to reflect changes in trading activity and liquidity which are part of the objective standards the PSE developed in 2006. The selection criteria adopted by the PSE allow it to consistently offer independent and transparent benchmark indices that investors can use as a tool for measuring the market’s performance,” said PSE chief operating officer Val Antonio B. Suarez.

A total of 16 firms were also added as new members of the various sector indices. Chemrez Technologies Inc. and Transpacific Broadband Group International Inc. will be taken off the Industrial Index and Services Index, respectively. Thus, the number of companies composing the sector indices went up to 85 from 71 previous

These adjustments mark the PSE’s latest revamp of the main index which consists of the country’s 30 most traded, liquid and capitalized firms. These changes will take effect on May 11.

Listed companies in the main index have to satisfy five criteria: the free float level, liquidity, volume turnover, tradability and free-float market capitalization.

The free-float capitalization and liquidity requirement were introduced in 2006.

Free float, also known as public float, refers to the portion of the outstanding shares that are freely available and tradable in the market, or those shareholdings, which are non-strategic in nature. The free float portion should represent at least 10 percent of the outstanding shares of a listed stock.

Free float market capitalization is computed using the volume weighted average price of a listed stock during a particular review period.

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 to be considered for index retention.

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