PSE stock index (PSEi) composition – March 2014

James Ryan Jonas

Wondering why the stock price of Manila Electric Co. or Meralco (MER) has been increasing in the past days? In just one week, MER’s stock price has risen by 10.6%, closing at PHP282.00 in yesterday’s trading.

One reason could be the announcement that the power utility will soon be joining the benchmark Philippine Stock Exchange index (PSEi) starting next month.

Effective March 17, 2014, Meralco (MER) will be part of the 30-company PSE index (PSEi), replacing Manila Water Company (MWC).

Meralco (MER) was actually part of last year’s PSEi, together with gaming operator Belle Corp. (BEL), but the two were replaced by LT Group Inc. (LTG) and GT Capital Holdings (GTCAP) after failing to meet the inclusion criteria in September 2013.

Philippine Stock Exchange index (PSEi)

The PSE index (PSEi), formerly known as the Phisix, is a grouping of 30 companies listed on the Philippine Stock Exchange selected to represent general movement of stock market prices. The index is regarded as one of the indicators of the overall state of the Philippine economy.

A rising PSEi value generally means stock prices are going up, confirming a positive outlook on future earnings of most Philippine companies. An increasing PSEi typically translates to profits for stock investors.

A declining index value, in contrast, connotes a pessimistic outlook on the market and corporate performance. Falling stock prices could lead to potential losses among stock traders.

The Philippine Stock Exchange conducts a rebalancing and recomposition of the PSE index twice a year — in March and in September — using several inclusion criteria.

Inclusion Criteria

The PSE considers the following three factors when determining which companies qualify to be part of the PSEi:

  • 1. Free Float — the stock must have a public float of at least 12%;
  • 2. Liquidity — stock must 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 — stock should be one of the highest-ranked market capitalization (MCAP), measured by the company’s stock price multiplied by the number of shares being publicly traded.

In March or in September during the review period, a stock could be added to the index if it rises above the 25th position in terms of full market capitalization, replacing the company that ranks lower.

A company, meanwhile, could be removed if it falls below the 35th position in terms of full market capitalization.

Impact of PSEi Inclusion on Stocks

A stock that is newly added to the PSEi generally has an increased demand among investors because several fund managers, including foreign institutional portfolio managers, are required to include only PSEi stocks in their investment portfolio.

The increase in demand causes a spike in stock price, evident in Meralco (MER) stock’s case in the past weeks.

PSEi Composition, as of March 2014

With the addition of MER, the new 30-company PSE index will be composed of the following starting March 17.

  1. Ayala Corp. (AC)
  2. Aboitiz Equity Ventures (AEV)
  3. Alliance Global Group Inc. (AGI)
  4. Ayala Land Inc. (ALI)
  5. Aboitiz Power Corp. (AP)
  6. BDO Unibank (BDO)
  7. Bank of the Philippine Islands (BPI)
  8. Bloomberry Resorts Corp. (BLOOM)
  9. DMCI Holdings (DMC)
  10. Energy Development Corp. (EDC)
  11. First Gen Corp. (FGEN)
  12. GT Capital Holdings (GTCAP)
  13. Globe Telecom (GLO)
  14. International Container Terminal Services Inc. (ICT)
  15. Jollibee Foods Corp. (JFC)
  16. JG Summit Holdings (JGS)
  17. LT Group Inc. (LTG)
  18. Manila Electric Co. (MER)
  19. Metropolitan Bank & Trust Co. (MBT)
  20. Megaworld Corp. (MEG)
  21. Metro Pacific Investments Corp. (MPI)
  22. Petron Corp. (PCOR)
  23. Philex Mining Corp. (PX)
  24. Robinsons Land Corp. (RLC)
  25. Semirara Mining Corp. (SCC)
  26. SM Investments Corp. (SM)
  27. San Miguel Corp. (SMC)
  28. SM Prime Holdings (SMPH)
  29. Philippine Long Distance Telephone Co. (TEL)
  30. Universal Robina Corp. (URC)

Index Reserve Stocks

Should any of the 30 companies above fail to meet the retention criteria, they may be replaced by any of the five “reserve” companies below:

  • Cosco Capital, Inc. (COSCO);
  • Philippine National Bank (PNB);
  • Puregold Price Club (PGOLD);
  • Rizal Commercial Banking Corp. (RCB); and
  • Security Bank Corp. (SECB)

The PSE will conduct another review and may revise the components of the PSE index again in September 2014.

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James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.