FTSE Expects Only Minor Index Changes In Next Wk's Review
Updated: Thursday, March 1, 2001 04:37 AM ET
HONG KONG (Dow Jones)--Stock market index provider FTSE International said Thursday it expects to announce only minor adjustments to its indexes next week, with markets not likely to trade on the adjustments.
FTSE is scheduled to release its quarterly index review March 8, with the changes to be effective by the end of that trading day in New York.
"There should be no huge changes this time around since markets have been reviewed periodically," said FTSE market development director Graham Colbourne.
While FTSE issues general quarterly reviews, individual markets are reviewed periodically, usually once a year. Hong Kong's index constituents, for example, were last reviewed in September.
Among the factors considered by FTSE in its quarterly reviews are market capitalization, the level of free float or the shares available for trading, new initial public offerings, previous IPOs that haven't made it to the FTSE indexes and recent corporate developments.
FTSE normally excludes companies whose market capitalization falls below 15% of the total market where they are traded.
"What we are constantly trying to do is build an index that is representative of investibility, while at the same time, easy and cost-effective for investors to use as benchmarks," Colbourne said.
One example of a company that won't make it to the FTSE indexes despite its huge market capitalization following a successful IPO this week is CNOOC Ltd. (H.CNO, news, msgs), the Hong Kong-incorporated subsidiary of state-owned China National Offshore Oil Corp., the mainland's third-largest petroleum company. CNOOC's free float is too small to be included in the indexes, Colbourne said.
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For the FTSE All-World Hong Kong index, Colbourne expects three additions and 17 deletions - mostly due to either higher market capitalization at above 70% or the reverse at below 10%. A total of 68 companies are currently tracked in the Hong Kong index.
The companies expected to be added to the Hong Kong index are Pacific Century Cyberworks Ltd. (H.PCW, news, msgs), Legend Holdings Ltd. (H.LHL, news, msgs) and Li & Fung Ltd. (H.LFL, news, msgs).
Among the companies expected to be deleted from the Hong Kong index are China Motor Bus (H.CMB, news, msgs), Realty Development Corp. (H.RDC, news, msgs), Peral Oriental Cyberforce Ltd. (H.POC, news, msgs), Jardine International Motor, Dickson Concepts International Ltd. (H.DKS, news, msgs), Chinese Estates Holdings Ltd. (H.CE, news, msgs), Harbour Centre Development Ltd. (H.HCD, news, msgs), Shun Tak Holdings Ltd. (H.STH, news, msgs), Sime Darby Hong Kong Ltd. (H.SDB, news, msgs).
Colbourne also expects only a few significant changes in the next FTSE review June 15, when all of the companies tracked by the London-based company are set to be adjusted according to free float, or the number of shares available to international investors.
FTSE announced in 1999 that all the weightings of all companies in its indexes would be adjusted to reflect free float, a move only recently adopted by Morgan Stanley Capital International. The MSCI indexes won't be fully adjusted to reflect free float until May 31, 2002.
"Over time, we have been moving to the free float, something that we knew international investors preferred as far back as two years ago," Colbourne said.
FTSE has published the new free float weightings of European companies and it expects to do the same for all other markets later this month. The advanced notice is meant to minimize any possible volatility that could arise if investors learn of the new constituents list only June 15.
The composition of U.S. companies in the FTSE indexes aren't expected to change significantly since many of them have high free-float levels.
U.S. companies generally have a high free float level of 90% of total shares compared with Asia, where only some 50%-60% of shares are freely traded.
In Asia, Japan is likely to be the most affected due to its relatively low free float level, which many analysts estimate at 65%.
-By Rita Raagas De Ramos, Dow Jones Newswires; 852-2832-2331; Rita.DeRamos@dowjones.com
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