Event
· The board of directors of Karachi Stock Exchange has approved a new KSE-100 Index based on a free float capitalization method.
Impact
· New index to represent a stock’s liquidity/investability. Under the new methodology, only free-float market capitalization will be considered for calculating the index as against the full market capitalization in case of the existing KSE-100 Index. Free-float is that percentage of total shares issued by the company, which is actually available for trading in the market. Hence, non-tradable shares i.e. cross-holdings, government-owned shares, sponsor holdings, private holdings and shares held in physical form will be deducted from market capitalization in order to represent the true investability of a stock. The above should also prevent index manipulation through excessive price run ups in illiquid/closely held stocks.
· Two indices to run in parallel for the next three months. The two indices i.e. current full capitalization KSE 100 index and free-float based new index will run in parallel for next 90 days for comparison purposes and for any adjustments, rebalancing that might be required by Investors. Thereafter at the time of next scheduled re-composition (October 1, 2012) of the index, KSE 100 (Free Float) shall replace KSE full-capitalization 100 index. KSE also said that rules for composition and re-composition of new index shall remain unchanged.
· We expect limited rebalancing by foreign investors. Major foreign investors in Pakistan have concentrated positions in large cap stocks such as OGDC, PPL and MCB based on a bottom-up analysis. We do not expect them to rebalance their portfolios to reflect the new index.
| Change in top stocks' weights in existing and free-float based KSE-100 Index* | |||
| Name | Symbol | Weight in existing KSE-100 Index | Weight in free-float based KSE-100 Index |
| Oil and Gas Development Corporation | OGDC | 21.98% | 13.47% |
| Pakistan Petroleum | PPL | 7.42% | 6.37% |
| Nestle Pakistan | NESTLE | 6.23% | 1.29% |
| MCB Bank | MCB | 5.00% | 8.07% |
| Fauji Fertilizer | FFC | 4.77% | 10.65% |
| Habib Bank | HBL | 4.17% | 1.68% |
| United Bank | UBL | 2.88% | 2.98% |
| Pakistan Oil Fields | POL | 2.70% | 5.09% |
| National Bank | NBP | 2.61% | 2.42% |
| Unilever | ULEVER | 2.30% | 2.05% |
| Allied Bank | ABL | 1.86% | 0.69% |
| Engro Corp | ENGRO | 1.62% | 3.01% |
| Fatima Fertilizer | FATIMA | 1.45% | 0.91% |
| PTCL | PTC | 1.45% | 0.93% |
| Hub Power Company | HUBC | 1.37% | 4.35% |
| PSO | HUBC | 1.32% | 2.47% |
| *based on March 28, 2012 prices |
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