‘Syariah stocks list revision won’t cause major disruptions’

PETALING JAYA: Public Investment Bank expects no major disruptions to the stock market with the seventh revision of syariah-compliant securities.
It said investors may be more preoccupied with capital outflows as a result of rapid US interest rate increases expected in the near to medium term.
The firm said while the short-term outlook points to further downside from the myriad of uncertainties, and the implication and potential impact of Donald Trump’s presidency, the market is primed for investors with a longer-term horizon.
It also said it will be unlikely that the FBM KLCI will reach its target of 1,720 for the year.
“In light of the rapidly weakening ringgit and the foreign-led sell-down seen in recent weeks however, our year-end target of 1,720 points looks increasingly unlikely to be met. We are cautiously optimistic on 2017 prospects, though seeing rewards primarily coming from a bottom-up approach,” the research firm said. The benchmark market closed at 1,645.28 points yesterday.
The research firm highlighted that the 20% business activity benchmark saw income, from the hotel and resort operations segment, dropped as one of the criteria, potentially paving the way for some higher-yielding REITs and/or property investment companies included in subsequent reviews subject to fulfillment of other criteria. Karambunai Corporation’s inclusion this round is a likely beneficiary of this relaxation.

It added that notable names like Bumi Armada and Sunway Construction were still non-compliant, while a few new initial public offerings made the cut, with Eversendai Corporation making a return after being dropped in the fifth revision.
Yinson Holdings and Oldtown – which count some institutional funds among its major shareholders – were dropped though none of the top 30 (as per most recent respective annual reports) had noticeable syariah-based mandates. With no major surprises, Public Investment expects the revision to pass without much fanfare.
A slightly higher 672 securities (669 previously) are now classified syariah-compliant, equating to 74% of the total 904 securities (905 previously) listed on Bursa Malaysia.
Movements in and out were plentiful in comparison this time round, resulting in a slightly higher net add of four (34 inclusions, 30 exclusions). The technology sector saw the most number of exclusions (eight), while property was again the most active with eight inclusions.
The immediate disposal criteria for securities deemed non-syariah compliant and trading in-the-money remains in place.
Yinson Holdings and Oldtown may potentially see some selling pressure considering their relatively decent share price performances, though it is not expected to be pronounced.