Analyst suggests to keep eyes on 20 stocks that would receive an effect from the revision on free float market cap calculation method, expecting passive funds to increase the weight on BBL to 125%. While DELTA, will be weighted down to 49% and at risk of dropping out of SET50.
Asia Plus Securities viewed the free float-adjusted market cap method will boost BANK, CONS, CONMAT, and ICT plays, selling ADVANC and AP to take profit and switch to INTUCH and TISCO. Top picks are CPF, INTUCH, and TISCO.
APS stated that the Stock Exchange of Thailand (SET)’s revision on SET Index calculation method, switching from full market capitalization to free float adjusted market capitalization to better reflect actual free float, in line with the global market, will weight on market outlook in 2 aspects:
1. The market is keeping an eye on big-cap SET50 and SET100 stocks with low free float. Originally, minimum free float requirement is 20% for SET50 and SET100 stocks. If the SET sets higher free float requirement, stocks with free float near the minimum requirement may be excluded and face negative sentiment, DELTA, GPSC, AWC, VGI, BPP, CKP, and ACE.
2. If the SET substitutes full market capitalization with free float-adjusted market capitalization in SET Index calculation, stocks with low free float would weigh less on SET Index, while some stocks would benefit from this. The change in SET calculation method will affect some stocks.
The SET has an overall free float of 44%. Sectors with higher free float than the SET include BANK, CONS, CONMAT, AGRI, ICT, HELTH, PROP, TOURISM, INSURE, and PF&REIT. As these stocks rise, they would boost SET Index further and investment from passive funds would rise. In contrast, sectors with lower free float than the SET include COMM, ENERGY, FOOD, PETRO, FIN, TRANS, MEDIA, AUTO, and ETRON. These stocks will weigh less on SET Index and passive funds may reduce investment.
10 stocks are projected to gain the most weights and benefit the most from passive fund rebalancing: BBL, SCC, SCB, KBANK, BDMS, CPALL, INTUCH, PTT, CPN and TISCO.
BBL will enjoy the largest weight gain on SET Index. This issue would increase its weight on SET Index by 1.7% further, from 1.4% to 3.1%. Every 1% rise in BBL will boost SET Index by 0.47 pts (up from 0.21 pts at present). Passive funds are expected to increase investment in BBL by 125%.
In contrast, these stocks will loss the most weights on SET Index, they will be adversely affected by fund outflow from passive fund rebalancing: DELTA, AOT, MAKRO, GULF, BAY, GPSC, ADVANC, PTTEP, SCGP and AWC.
Under this new method, SET Index would fluctuate for the short term from passive fund restructuring and speculation, but SET Index will better reflect actual market trading and free float. Therefore, APS recommended stocks benefiting from these issues. Top picks are INTUCH, TISCO, and CPF.