PETALING JAYA: Malaysia’s benchmark equity market is likely to see a gradual reshaping of liquidity and investor demand as the FBM KLCI expands to 50 constituents from the current 30.
The adjustment should be more visible at the individual-stock level than across the broader market, with changes in index exposure spread over two stages from December 2026 to June 2027.
CIMB Research said the relatively small pool of passive assets tracking the FBM KLCI means the expansion is unlikely to trigger a major market-wide flow shift, despite potentially significant changes in individual index weights.
“With passive KLCI-tracking assets under management relatively small and inclusion phased at 50% in December 2026 and 100% in June 2027, we expect the near-term flow impact to be more stock-specific than market-wide,” the research house said.
CIMB Research expects index exposure to move away from existing heavyweight sectors, particularly banks and utilities, towards the 20 new constituents.
However, it noted that the absolute passive-flow impact could be smaller than changes in index weights might suggest.
“The absence of a 10% company-level cap also removes an additional source of forced selling among existing heavyweights,” it said.
“The two-stage implementation would spread the adjustment from December 2026 through June 2027.
The changes follow a Sept 7 industry dialogue between Bursa Malaysia and FTSE Russell, which provided further details on the expansion.
FTSE clarified that full market capitalisation will determine final stock selection, while free float will determine index weights.
As a result, CIMB Research expects market attention to centre increasingly on full market-cap rankings ahead of the Nov 23 cut-off, particularly among stocks near the inclusion threshold.
“We expect investor attention to increasingly focus on changes in full market cap rankings as the November 2026 cut-off approaches, particularly for stocks close to the inclusion threshold and where potential index demand is significant relative to liquidity,” it said.
Bursa Malaysia has provided an indicative list of 20 potential additions based on market data as at June 30, although the final line-up will only be announced on Dec 3.
CIMB Research’s simulation using Aug 20 market prices identified Eco-Shop Marketing Bhd
as a potential entrant instead of Unisem (M) Bhd, underscoring how changes in market-cap rankings could alter the final composition.
Meanwhile, the FBM70 will be cut to 50 constituents and renamed the FTSE Bursa Malaysia Mid Cap Index on Dec 21, while the FBM100 will remain unchanged.
The FBM KLCI’s phased inclusion factor does not apply to other FTSE Bursa Malaysia indices.
CIMB Research said the second-stage transition by June 2027 is not automatic, as constituents must remain eligible at that point.
FTSE Russell is also reviewing the fast-entry threshold for large initial public offerings, with details expected in updated ground rules by end-September.
CIMB Research has not incorporated the proposed relaxation into its index-screening assumptions as the revised threshold has yet to be formally specified.
Meanwhile, an analyst told StarBiz that bringing more large-cap names into the benchmark should broaden institutional participation and improve trading liquidity in the new constituents, particularly those that currently sit outside the FBM KLCI and have more limited index-related demand.
“The expanded FBM KLCI should provide a more balanced reflection of Malaysia’s equity market, reducing the dominance of banks and utilities.
“While the change may dilute the influence of existing heavyweights on index performance, greater sector diversification could make the benchmark more representative of the broader market over time,” he said.
