I’ve received several inquiries about the upcoming review of the PSE index (PSEi). There’s a report making the rounds that predicts that Monde Nissin [MONDE 15.90 1.40%], Emperador [EMP 19.68 0.61%] will be included, and that Bloomberry [BLOOM 6.50 0.15%] and Robinsons Retail Holdings [RRHI 56.90 2.98%] will be excluded, but there’s also a rumor circulating that DITO CME [DITO 5.37 9.15%], the indirect majority owner of Dennis Uy’s Dito Telecommunity, could make the cut as well.
Many readers reached out for my reaction to this, and to ask (in less polite terms) “How can this be?”
Readers cite the stock’s abysmal performance this year (it’s fallen 70% from its February 2021 high) and lack of profits as reasons why DITO’s inclusion wouldn’t make any sense. To analyse the situation, it’s best to start with the rules.
What does a stock need in order to be considered for inclusion in the PSEi?
According to the PSE [PDF document], to be considered for inclusion, a stock must have been (1) listed on the main board for the review period (all of 2021), (2) have a free float of at least 20% at the end of the review period, (3) be in the top 25% of PSE stocks in terms of median daily trading value for at least 9 months in the past year, and (4) be one of the 30 largest companies on the PSE in terms of market capitalization.
Does DITO potentially qualify? Well, it absolutely satisfies the first point, and the stock ended the review period with a free float of 20.02%, which satisfies the second point.
I don’t have DITO’s liquidity info crunched, but even a casual observer of the market would probably get the feeling that DITO’s daily/monthly trade value is pretty consistently in the highest quartile.
The basurapalooza of January/February 2021 likely helped considerably with (potentially) satisfying that point.
Assuming sufficient liquidity, all that leaves is market capitalization.
As of this writing, DITO’s marketcap is P77.1 billion, which puts it somewhere in “top” low 40s on the PSE.
But the PSEi doesn’t capture just the top 30 companies by marketcap, it captures the top 30 companies by marketcap that satisfy all the other requirements.
MB BOTTOM-LINE
Without the PSE’s statistics on liquidity, it’s hard for me to say definitively whether DITO should be in the PSEi or not.
I’m not usually a huge follower of the inclusion/exclusion drama (I know there are many that follow this as part of a viable trading strategy, but that’s a waterfall that I’m not going to chase just yet), but if I was, I’d probably have figured out a way to track this liquidity data and do just a simple sort-descending.
But I’m not, so I can’t.
Let’s say, for argument’s sake, that DITO’s liquidity was sufficient to satisfy that third requirement; given that some of the largest companies on the exchange (by marketcap) are also some of the deadest (in terms of liquidity), it doesn’t seem all that crazy that DITO could sneak in there as a top-30 company using the PSE’s filter for PSEi-eligible companies.
Will it gain inclusion, though? I don’t know if it will.
The point of this was only to outline what criteria the PSE will look at when it comes to evaluating that inclusion, and to especially underline that stock price performance is not something that the PSE cares about directly in this regard.
--