PSE maintains stock choices for main index

Thursday, February 23, 2012

THERE will be no changes in the composition of the main Philippine Stock Exchange index (PSEi) effective March 12, based on the PSE’s review of trading activity in 2011.

Before this review, the last recomposition of the index was on Sept. 12, 2011.

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“The rules we have adopted last year pertaining to the management of the index provide firmer support for stability and predictability in the index. The rally of the index shows that this composition indeed represents the positive investor sentiment in the market,” said Hans B. Sicat, PSE president and chief executive officer.

Among the enhancements included in the exchange’s Policy on Index Management are rules for insertions and removals to provide stability in the selection of PSEi-member companies. Under the rules, a company shall be inserted in the PSEi if it rises above the 25th position by full market capitalization (MCAP), to replace the company that ranks the lowest.

The same section provides that a company will be deleted in the PSEi if it falls below the 35th position by full MCAP, and replaced by the company with the highest MCAP among those included in the reserve list.

To be included in the PSEi, which is a basket of 30 stocks, a listed company must satisfy three criteria: the free float level, liquidity, and full market capitalization.

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 12 percent of the outstanding shares of a listed stock.

In order to pass the liquidity criterion, a stock must be among the top 25 percent by median daily value turnover per month for at least nine out of 12 months.

Full market capitalization, on the other hand, refers to companies that pass the first two criteria and are ranked from highest to lowest based on volume-weighted average price during the review period.

In selecting companies that will compose the sector indices, common stocks of the company must rank among the top 50 percent in terms of median daily trade per month in eight out of the 12 months in review. (PR)