Friday, September 16, 2011

What is Philippine Stock Exchange Index (PSEi)?

We have a total of 238 companies listed in the Philippine Stock Exchange. Out of these 238 companies, we have small companies and large companies. The 30 largest companies in the Philippines listed in the stock market were grouped and called Philippine Stock Exchange Index (PSEi). Thus, if a company is listed in the PSEi, it is one of the largest companies in the Philippines. Most often, these companies are also referred to as the blue-chip companies. 

PSEi is the most watched index in the Philippine Stock Exchange (PSE).  It is also one of the indicators on the general state of the Philippine economy.

There are three criteria before a company will be included in the Philippine Stock Exchange Index (PSEi):

1. Free float level must be at least 12%. 

The free float level is the percentage of a company's outstanding shares that are not held by 'strategic shareholders. Regularly updating the exact level of a company's free-floating shares will give investors a clearer picture of whether a particular stock is widely held or closely controlled. This will also help investors discern whether a stock's price is moving sharply because of actions made by a broad investor base or simply by a few shareholders.

A strategic investor is someone who has a strategic reason for investing in your enterprise; that is, they have an over-arching interest in yoursuccess. You can find strategic investors by looking through your supply chain and your value chain. Even your competitors can be a source of strategic start-up capital if they are looking to you as a new co-opetitor.

Say you are bootstrapping a new home builder. A trade creditor (supplier) might extend credit to you for building materials and supplies or a client might give you a sizable down payment on a home purchase; in essence, each of them become a strategic investor in your business. Or say you are starting an athletic wear clothing business, department stores might give you a cash advance in return for exclusivity or a sports drink company might sponsor your line of clothing in return for co-branding opportunities.

2. Trading liquidity must be among the top 25% by median daily value per month for at least nine out of twelve months. 

Median means "middle number" (in a sorted list of numbers). Example: the Median of 3, 5 and 12 is 5.  Trading means buying and selling of stocks. 

3. Top 30 based on full market capitalization

Full Market Capitalization refers to a method of equity index construction whereby the index components are weighted by the total shares outstanding. Under the 'full-market capitalization' methodology, the total market capitalization of a company, irrespective of who is holding the shares, is taken into consideration for computation of an index which includes promoters' holding, government holding, strategic holding and other locked-in shares.

Every March and September, the PSEi will change the list if some companies failed to meet the requirements and others which are not included have met the guidelines above.

The PSE noted that the ranking shall no longer consider the sector representation of companies and shall treat eligible companies equally. Before, final selection of companies is done in two stages with the two highest-ranked companies from each of the six sectors filling the first 12 slots to ensure sector representation. The remaining slots will then be occupied by the 18 highest-ranked companies from among the other qualifiers. 

A reserve list or companies which ranked 31st to 35th by full market capitalization will be used in the event that one or more members are deleted from PSEi on the next review.

Next blog will be list of companies in PSEi.

ref: PSE

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