KLCI, index stocks boosted by year-end window dressing

KUALA LUMPUR (Dec 19): Selected composite stocks of the 30-stock FBM KLCI have started their yearly climbing trend since early this month, supported by window dressing activities of institutional funds and key shareholders.

Their climb and the weightage they exert on the KLCI  has contributed to the rise of the benchmark index in a generally quiet market in the last few days. Today, the index rose 6.2 points to 1665.64, but the volume was thin at 737.16 million shares.

Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew told theedgemalaysia.com that window-dressing of stocks will continue right up to the end of the year and could spill over to mid-January, and hence there is still room for the KLCI to rise.

“At this point, the FBM KLCI has only been dragged up by about 4.8%. Typically window dressing activities will continues until it has been pushed up between 8% and 9%, so there is still some way to go,” said Pong.

“Window dressing will be more evident in the next, and final week of the year,” said Lee Cherng Wee, research manager of JF Apex Securities.

Technically window dressing should end on Dec 31, but it will still go on for some time, said Lee.

The usual suspects for such activity are Petronas-linked companies, big plantation stocks, telcos and consumer stocks, analysts said.

Both Petronas Gas Bhd (PetGas) and Petronas Dagangan Bhd (PetDag) were among the top ten gainers today (Dec 19), rising 3.14% to RM19.08 and 1.17%to RM23.84 respectively.

PetGas and PetDag have a 2.81% and 1.32% weightage respectively on the FBM KLCI.

Public Bank Bhd, which has been rising since late November from RM15.40 per share, is the largest component of the index with a 10.52% weightage. The stock hit a 52-week high of RM16 on Dec 18 and Dec 19.

Sime Darby Bhd, which has also started climbing up since early this month, closed up 20 sen at RM9.39 today. Its contribution to the index is 7.87%.

Telekom Malaysia Bhd share which has exhibited similar trend, closed 10 sen higher at RM5.91. Its contribution is 2.95%.

Malayan Banking Bhd, which has been flat generally, is expected to show some positive development nearer to the end-December.

A senior vice president with a local research house told theedgemalaysia.com that some window dressing of funds would only take place in the last few days of the year.

“There is little point starting much earlier because some funds have limited cash,” he said.

But apart from index-linked stocks, he believes that some small and mid-cap firms will also be dressed up this season as these stocks have been hit tremendously over the last few months, sliding around 20%.

“It is easier to push up small cap firms percentage-wise as opposed to big caps,” he said.

Window dressing activities are usually carried out by statutory funds, such as Employess Provident Fund, Permodalan Nasional Bhd and Lembaga Tabung Angkatan Tentera and other retired funds.  Companies may also use share buy-back schemes to prop up share prices, but this is done throughout the year.

“Window dressing will therefore by funds and major shareholders of public listed companies,” he said.

“This year, window dressing activities are very widespread, even across the Asian region,” said Inter-Pacific’s Pong, adding that the market rarely sees this much of “polishing” at year end.

According to Pong, fund managers like to close the year on a high note.

“Both local and foreign [fund managers are window dressing at this point], but the foreign funds are not as aggressive as before. Bulk buying at this point is largely by local funds,” Pong said.

 

This article first appeared in The Edge Financial Daily, on Dec 20, 2012.

 

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