PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 9 Jul 2020, 10:04 AM


Shariah-compliant Securities List- Less Fanfare

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Fourteenth review. While the previous November 2019 review could have been considered relatively active given the number of inclusions and exclusions, the current edition appears to be subdued with only 12 inclusions and 9 exclusions (November 2019 review: 38 inclusions, 29 exclusions) across the Main and ACE Markets. The number of shariah-compliant LEAP market securities remains unchanged. Full list of stocks included and excluded (with their respective sectors) are highlighted in Appendix 1.

Berjaya Food and C.I. Holdings are the notable inclusions, the latter making it back after having been dropped in the May 2019 review. Pentamaster Corporation and Asia Media Group made quick returns into the listing, having been dropped in the previous review. Two stocks (mTouche Technology, SCH Group) dropped in the May 2019 review made it back at the 2nd time of asking.

A slightly higher 697 (November 2019: 696) securities are now classified Shariah-compliant, though with the proportion remaining unchanged at 77% (November 2019: 77%) given the 900 (November 2019: 900) securities listed on Bursa Malaysia.

Sector-wise, inclusions were evenly spread out amongst Industrials (4), Consumer (3) and Telecommunications (3), though six (6) of which were in the ACE Market. As for exclusions, Industrials (4) dominated, followed by Consumer (2). A complete listing of changes is shown in Appendix 1.

Impact on our coverage. Since the last review, we dropped coverage on Ayer Holdings, KKB Engineering and Daya Materials, the latter shariah non-compliant.

With no significant changes in this review, the total number of compliant stocks under coverage is now 66 of the total 79 stocks under core coverage, or 83.5% (November 2019: 68 of 82, or 82.9%). The compliance status of our coverage list is in Appendix 3.

Market impact. Exclusions this time will have less fanfare as none appear (as per most recent Annual Reports) to have Shariah-based/Islamic institutional fund holdings amongst its listing of top 30 shareholders. While there is still no compulsion for anyone to sell should investments be out-of-money, past instances have suggested compliance (ie. immediate disposals) by funds regardless. Pentamaster Corporation was the biggest casualty in the recent review, though not surprising considering it was mostly in-the-money in the period leading up to the recent review. Appendix 4 highlights share price movements of 4 notable dropouts in the last round.

Consumer confidence and business sentiment has taken a severe hit from the Covid-19 pandemic with disruptions in demand-supply dynamics and break down in economic activities threatening a global recession, to which governments and central banks worldwide have unveiled massive fiscal and monetary measures to avert. While market sentiment appears decidedly positive at this juncture, global outlook remains shaky as major consuming economies, the United States and the European Union, may struggle to tackle business closures, job losses and wage declines. China’s apparent earlier-than-expected economic recovery is a boon, though likely to be insufficient to drive global growth. Fresh US – China tensions is also not helpful. 2020 will be another wash-out year, similar to 2019. Sector-wise, healthcare and gloves have shone amid this health crisis, both already on our Overweight calls since the end of last year. A temporarily-weak Ringgit should be good for the manufacturing sector (particularly exporters) though coronavirus-related concerns and its impact on global demand may impede upsides. Construction may be a hidden star. Optimistically, we still see the FBM KLCI closing at around the 1,480 point level by year-end.

Source: PublicInvest Research - 29 May 2020

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