KUALA LUMPUR, May 8 ― The US Federal Reserve (Fed) is expected to be less aggressive with regard to monetary stance this year, which may be positive to emerging currencies (including the ringgit), as well as commodity prices, MIDF Research said.

 It said, moreover, the slowing of China’s economy may prompt more stimulus measures, both monetary and fiscal by the local authorities, with positive spillover effects to the broader region.

"Domestically, the macro picture remains healthy with gross domestic product growth expected at 4.9 per cent this year, and corporate earnings growth at circa middle single-digit.

"For now, we maintain our FBM KLCI year-end 2019 target at 1,800 points pending the outcome of the on-going first quarter calendar year 2019 results season,” it said in a statement.

The research house noted that the local bourse would do a MSCI and FBM KLCI indices rebalancing exercise on May 29 and June 6 this year, and this is expected to have significant impact on the trading behaviour among investors.

The MSCI Inc would be releasing the outcome of its May 2019 Semi-Annual Index Review for all the MSCI Equity Indices next week, whereby the relevant changes to the constituents in each, came into effect as of end-May.

Investors can brace for a significant increase in trading activities. The MSCI rebalancing exercise resulted in a significant increase in trading activities, both in trading volume and value of transactions.

The need for fund managers, especially the Exchange-Traded Fund (ETF) which benchmarked MSCI indices to replicate the index constituents, whilst minimising the tracking errors, would result in significant trading activities on the rebalancing day.

MIDF Research expects volume and value traded to be high for the week of the rebalancing as evidenced by the previous rebalancing exercises in May and November 2018.

Meanwhile on June 6, the first semi-annual review of the FTSE Bura Malaysia Index series would be announced.

The FBM KLCI as with the other indices belonging to this index series, will see changes in its constituents, resulting from an index review after the close of markets on June 21.

Among the main consideration for inclusion into the FBM KLCI Index is free float and liquidity criteria.

MIDF Research said current constituents are at risk of exclusion.

"Based on the change of adjusted market capitalisation of the current constituents of the FBM KLCI 30 between December 21, 2018 (last rebalancing) and April 30, 2019,  we found that Top Glove Corporation Bhd experienced the fourth largest decline of 7.3 per cent,” it added.

The rubber glove manufacturer’s ranking (based on adjusted market capitalisation) went down by three notches to the 38th spot between late-December 2018 and end April 2019.

If the liquidity factor is to be taken consideration on top of adjusted market cap rank, Malaysia Airports Holdings Bhd (MAHB) would be one with the highest possibility of being removed from the list.

Despite the 2.7 per cent increase in terms of adjusted market cap from December 2018 to April 2019, the ranking of MAHB based on adjusted market cap went down by one notch, from 39 to 40 during the same period.

MIDF Research said financials and banks are also at risk.

"Hong Leong Financial Group Bhd and Hong Leong Bank Bhd are two other constituents which are risk of being removed from the index as the volume based on median trading volume per month has remained below the 0.04 per cent level for more than 20 months since July 2017,” it said.

Nonetheless, Hong Leong Financial Group and Hong Leong Bank Bhd may be saved by its adjusted market cap ranking, which stood at the 19th and 7th spots between December 2018 and April 2019.

On the other hand, there are five stocks that had the possibility for inclusion from the reserve list, namely Westports Holdings Bhd, YTL Corporation Bhd, Lotte Chemical Titan Holding Bhd and KLCCP Stapled Group Bhd. ― Bernama