PSE revamps 30-company main index

The Philippine Stock Exchange (PSE) is reconstituting its 30-company main index to accurately track the real movement of the stock market.

PSE president Francis Lim said a new set of companies that have passed the liquidity requirement of the exchange will be included in the main composite index or Phisix effective Dec. 1. Among these corporations include retail tycoon Henry Sy’s Banco De Oro Universal Bank and SM Investments Corp., the Ayala-run water utility firm Manila Water Corp., mobile phone operator Pilipino Telephone Corp. and Philex Mining Corp.

To be dislodged from the current list are Philippine National Bank, Ginebra San Miguel Inc., JG Summit Holdings Inc., Music Corp., and Ionics Circuits Inc.

At the same time, Lim said the exchange is moving to adopt free float market capitalization as criterion in the selection of companies to comprise the benchmark composite index beginning April next year.

This means that the composition of the index may change again depending on the compliance of listed companies with the criteria.

Lim said using the free float shares in the computation of the index better reflects market realities as they track demand and supply in the stock market.

"After a rigorous review, we found that the current index is already understated and no longer reflects true market movement.

This should be corrected by finding an index methodology that would capture the realities of the market and thus, reflect its general movement more accurately," Lim said.

He said free float refers to the shares of a listed company that are freely available to the investing public.

The new trading selection scheme, which will take effect on the first trading day of April is based on these criteria:

• a free float level of at least 10 percent of the total issued and outstanding shares;

• an average daily trading value of at least P5 million;

• tradable at least 95 percent of the total trading days; and

• volume turnover must be at least 10 percent of the average outstanding shares

Among the foreign exchanges using the free float market capitalization are those of Hong Kong, New York, Canada, Japan, Singapore and Germany.

Moreover, Lim said the PSE board approved a new industry classification scheme which will now focus on the business generating the bulk of the listed companies’ revenues rather than the primary purpose stated in the firms’ articles of incorporation as criteria in classifying listed companies in the exchange.

Lim said the move is in line with efforts to bring the local equities market at par with global standards.

Lim said this was patterned after the Global Industry Classification Standards (GICS) of index providers Morgan Stanley Capital International and Standard & Poors.

The new industry classification comprises the industrial sector, financial sector, property sector, financial services sector, mining and oil sector and the newly-created holding firms sector.

Under the industrial sector are industries on food, beverage and tobacco; construction, infrastructure and allied services; electricity, energy, power and water; diversified industrials and chemicals.

Industries in the services sector are hotel and leisure, transportation, telecommunications, media, information technology and diversified sectors.

Other changes in the reclassification include the renaming of commercial-industrial to industrial sector as the former’s commercial component does not meet the criterion of one percent of sector market capitalization.