“There probably would not be a big difference to [fund] flows immediately — apart from a one-time adjustment on the hypothetical inclusion of the 20 new stocks — because the market cap dramatically falls off for the new inclusions,” he adds, referring to the difference between the incremental market capitalisation increase from the new 20 inclusions and the relative size of the existing 30 stocks.
The combined market capitalisation of the 20 potential new additions — being the 20 largest stocks on the FBM Mid 70 — is only about the size of the combined market capitalisation of the two largest stocks on FBM KLCI. The two are Malayan Banking and Public Bank, with a market capitalisation of RM137.2 billion ($43.7 billion) and RM90.8 billion respectively on March 31, or a combined market value of RM228 billion.
CIMB Securities head of research Ivy Ng says a hypothetical 50-member FBM KLCI would have outperformed the current 30-member FBM KLCI “by approximately 60 points on an annualised basis” from June 2016 to December 2025.
“We are positive on these proposals, as expanding the number of FBM KLCI constituents to 50 from 30 is expected to increase its market capitalisation coverage to 70% (from 60%), strengthen its representation of the Malaysian equity market, and improve industry diversification,” Ng wrote in an April 3 report, noting that the FBM100 index market cap coverage stays at 81%.
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She expects a “one-time rebalancing flows” from index-tracking funds either on Dec 21 or June 21, 2027, should the FBM KLCI be expanded to 50 constituents, with likely outflows from banks, utilities and basic materials sectors and inflows in favour of the real estate, energy, technology and healthcare sectors.
“Based on a hypothetical scenario using March 31, 2026, share prices, we estimate that expanding the number of FBM KLCI constituents to 50 would reduce the weight of traditional sectors such as financial services (to 37% from 43%) and utilities (to 13% from 15%), while increasing the weights of the real estate (+3%), industrial (+1.8%), energy (+1.1%), consumer staples (+0.9%), consumer discretionary (+0.9%) and technology (+0.4%) sectors,” Ng says.
She adds that the financial sector “is expected to experience the largest weighting reduction (-5.4 percentage points), followed by utilities (-1.7 ppt) and basic materials (-1.3 ppt) sectors”.
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“At the stock level, Malayan Banking, Public Bank and CIMB Group Holdings could see the largest weight reductions due to dilution from the expanded index. Dialog Group, United Plantations, KPJ Healthcare, TIME dotCom and IJM Corp are likely to benefit from inclusion in the FBM50 index.”
Ng’s analysis shows the potential addition of five real estate, four industrial and three consumer discretionary names to the 50-member FBM KLCI, alongside one additional constituent each from the financial, telecoms, utilities, healthcare, energy and technology sectors.
The other 15 potential stock additions are Westports Holdings, IOI Properties Group, QL Resources, IGB Real Estate Investment Trust, Genting Malaysia, Tanco Holdings, Genting, Sime Darby Property, Sunway Construction Group, Malayan Cement, Alliance Bank Malaysia, ViTrox Corp, Sunway Real Estate Investment Trust, Gas Malaysia and Eco-Shop Marketing.
Apart from expanding the FBM KLCI to 50 constituents “to reflect a broader, more diversified economy”, Bursa Malaysia together with FTSE Russell — in a consultation paper issued on March 31 seeking feedback through April 24 — also proposed the introduction of a 10% company-level cap on KLCI constituents and reducing the number of FBM70 constituents to 50 from 70 currently.
Any approved changes to the FBM KLCI and FBM70 would take effect in nine months at the earliest, in December 2026 or June 2027, according to a statement dated March 31.
“As Malaysia’s economic landscape evolves, the FBM KLCI and FBM70 play an important role in shaping how domestic and international investors access the Malaysian equity market,” Bursa Malaysia said in a statement dated March 31, adding that the consultation “forms part of ongoing efforts to ensure that Malaysia’s key equity benchmarks remain relevant as the Malaysian equity market grows in size, breadth and liquidity”.
It also “reflects the joint commitment of Bursa Malaysia and FTSE Russell to maintaining credible, transparent and forward-looking market benchmarks that support investment decision-making, capital formation and the long-term development of Malaysia’s capital market”.
The current FBM KLCI was adopted in July 2009 following a partnership with FTSE in 2006.
