2012 PSE index (PSEi): Cebu Pacific out, Petron in

August 28, 2012

Stocks, Mutual Funds, Forex, Finance Philippines

Make Money Online, Stocks, Mutual Funds, Philippines

Those holding Cebu Pacific (CEB) stocks are probably wondering what’s causing the stock to plummet during the past trading days. In just one week, the stock price of budget airline Cebu Pacific has declined by 9.3%, closing at P61.40 in last Friday’s (August 24) trading.

It’s actually been a losing battle for CEB stockholders since the company’s hyped initial public offering (IPO) in 2010. On its first trading day on the Philippine Stock Exchange (PSE) in October 2010, Cebu Pacific rose to P133.00 from its IPO price of P125.00. Unfortunately, the stock has not recovered from that all-time high price. It even ended the year 2011 at half the price, closing at P64.80 on the last trading day.

The stock recovered a bit in February 2012, hitting a year’s high of P75.65, but it subsequently succumbed to selling pressure due to rising fuel costs and stiff competition from other budget airline companies. Year to date (from January to August 2012), the stock is down 6.5%.

CEB’s stock price falls

Add to its current woes is the decision of the country’s bourse to remove Cebu Pacific’s stock from the Philippine Stock Exchange index (PSEi), a basket index of 30 publicly traded companies generally considered a benchmark of the state of the Philippines’ economic health.

Being delisted from the PSEi sends a subtle signal that a company is unable to perform at par with the 30 “top-tier” companies, which explains why some investors have decided to dump the Cebu Pacific stock after the revised PSEi was announced.

More importantly, the decline in prices may have been brought about by the sudden unloading of foreign fund managers who have a mandate to invest only in PSEi stocks.

PCOR replaces CEB in PSE index

Effective September 10, oil refiner Petron Corp. (PCOR) will take over CEB’s slot in the PSEi. The decision is based on a regular assessment conducted by the PSE using “enhanced objective criteria for inclusion” that will “provide improved stability and predictability in our main index,” according to the PSE statement.

Cebu Pacific was delisted from the PSE index after its full market capitalization value fell below the top 35 position (among a list of 254 publicly listed companies) as a result of the stock’s dragging market price.

Petron Corp. was added following Section 3.2 of the PSE’s “Rules for Insertions and Removals (in the PSEi)” stating that a company shall be inserted in the benchmark index if “it rises above the 25th position by full market capitalization (MCAP), to replace the company that ranks the lowest.”

PSEi eligibility requirements

Aside from these rules, companies must abide by the following policies in order to remain in the PSE index:

1. Free Float requirement – at least 12% of a company’s outstanding stocks must be public float, or shares that are freely available and tradable in the market;
2. Liquidity requirement — the liquidity criterion requires stocks to belong to the top 25% by median daily value turnover per month for at least nine out of 12 months; and
3. Full Market Capitalization – companies that pass the first two criteria are ranked from highest to lowest based on volume-weighted average price during the review period.

New PSEi composition, as of September 2012

With the entry of Petron Corp. and the removal of Cebu Pacific, the revised PSE index (PSEi) will now be composed of the following 30 companies starting September 10, 2012.