Most derivatives traders always use traditional technical analysis on the derivative chart to predict the future price movement. Very few traders will look at the underlying asset of the derivative to predict the future price movement. If we analyse the underlying asset instead of the derivative price movement, we can know the upcoming price direction much more accurately. This is because the derivative price moves according to the underlying asset.
For example, the contract price of FKLI moves according to FBMKLCI & the index valuation depends on the 30 component stocks. If you are a future contract trader & you wish to improve your analysis on the FKLI price movement, you will need to look into the 30 component stocks to find the direction of FKLI.
Many retail investors try to trade with futures contracts thinking they don’t have to focus on so many stocks, they feel much easier by just looking into 1 asset class. The true story behind it is because they can’t make profit in the stock market. Index futures contracts do not make it easier to trade, because you will need to monitor the basket of component stocks.
Is worst when it is a commodities futures contract, because you will need to analyse the volume of that commodities, how many supplies & demand are there in the actual market. Don’t get us wrong, it is not the traded contract volume, it is the actual production volume & the market demand for that commodities. If you have real time volume of these commodities actual supply & demand, then you can predict the next price movement much easier.
This is why many commodities futures contracts are well-played by the commodities big boys. Because they have better information about the market data than retail traders. This makes FKLI or index futures contracts more tradable for retail traders, because you get the real time price & volume data from the underlying securities.
Basic info of KLCI
FBMKLCI consists of 30 component stocks with different weighting based on the stock’s valuation. Those stocks that weigh more in FBMKLCI will affect the index valuation more. Before we analyse the individual stock, we need to know the weighting of each stock in FBMKLCI like the one below :
*Take note : the percentage weighting for FBMKLCI will vary throughout time, with stock price’s fluctuation.*
|
Name |
Market Cap (M) |
% weighting |
|
TOPGLOV [S] |
5,805.32 |
0.61% |
|
HARTA [S] |
6,595.70 |
0.69% |
|
INARI [S] |
9,070.72 |
0.95% |
|
DIALOG [S] |
11,341.56 |
1.19% |
|
SIME [S] |
14,845.62 |
1.56% |
|
GENM |
15,069.45 |
1.58% |
|
GENTING |
16,865.52 |
1.77% |
|
MRDIY [S] |
18,382.89 |
1.93% |
|
TM [S] |
20,480.62 |
2.15% |
|
PETDAG [S] |
21,140.70 |
2.22% |
|
HLFG |
21,619.22 |
2.27% |
|
KLK [S] |
22,619.72 |
2.38% |
|
PPB [S] |
23,017.65 |
2.42% |
|
RHBBANK |
23,124.30 |
2.43% |
|
IOICORP [S] |
24,211.10 |
2.54% |
|
AXIATA [S] |
25,236.83 |
2.65% |
|
DIGI [S] |
28,456.50 |
2.99% |
|
MAXIS [S] |
29,049.85 |
3.05% |
|
SIMEPLT [S] |
29,530.10 |
3.10% |
|
NESTLE [S] |
30,672.60 |
3.22% |
|
MISC [S] |
31,781.87 |
3.34% |
|
PETGAS [S] |
33,559.29 |
3.52% |
|
PMETAL [S] |
35,842.34 |
3.76% |
|
HLBANK |
42,900.85 |
4.51% |
|
TENAGA [S] |
47,462.89 |
4.98% |
|
IHH [S] |
52,572.08 |
5.52% |
|
CIMB |
57,058.29 |
5.99% |
|
PCHEM [S] |
68,240.00 |
7.17% |
|
PBBANK |
84,242.40 |
8.85% |
|
MAYBANK |
101,495.75 |
10.66% |
|
Total Mkt Value |
952,291.73 |
1 |
|
*3/11/2022 data |
MAYBANK is weighted the most in FBMKLCI with 10.66%, while TOPGLOV weighted the least in the index, 0.61%. Assuming MAYBANK moves up 5% in a trading day and TOPGLOV goes down 10%, the rest is unchanged. You will see KLCI to move up & it is less affected by the TOPGLOV price fall.
By knowing which stocks weigh the most in FBMKLCI, we can focus our analysis on these stocks to estimate the direction of FBMKLCI. For example, most of the heavy weighted stocks are showing signs of rebound with volume going in with price up after sign of price bottoming on the trading day, it is telling us the index will have a rebound the next day.
However, this is just a brief explanation of what moves the index. We will need to know what kind of price & volume movements shows the big boys have the intention to mark these stocks higher. Also how much weight & effect will these stock price movements cause a reaction to KLCI that is enough margin for us to trade.
We will share more analysis to find the trading opportunity for FKLI in our next posting. Follow us on our social media to get notification when the new FKLI blog is posted. In the meantime, there are some topics that you can read up on our website to help you to find price bottom & rebound.
https://www.roundnsurge.com/news/how-to-select-klse-stocks-from-top-active-list
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Malaysia's stock market is a unique market; hence it requires a customized trading approach to tackle & swerve. Many existing traders in Malaysia apply a plug-and-play strategy from the overseas stock market, but it is not necessarily the best strategy to trade in KLSE. This is due to the difference in local and overseas stock market regulation and the size of market participants of institutional funds & retail investors.
“True traders react to the market.” is the backbone of our trading method. Our findings and strategies are developed through years of trading experience and observance of the operating style in Malaysia’s stock market.
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Disclaimer :
This blog is for sharing our point of view about the market movement and stocks only. The opinions and information herein are based on available data believed to be reliable and shall not be construed as an offer, invitation or solicitation to buy or sell any securities. Round & Surge and/or its associated persons do not warrant, represent, and/or guarantee the accuracy of any opinions and information herein in any manner whatsoever. No reliance upon any parts thereof by anyone shall give rise to any claim whatsoever against Round & Surge. It is not advice or recommendation to buy or sell any financial instrument. Viewers and readers are responsible for their own trading decision. The author of this blog is not liable for any losses incurred from any investment or trading.
