The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) is the go-to benchmark for the Malaysian stock market.
Did you know? You can actually gain exposure to the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) via the futures market!
In this post, let's explore the FTSE Bursa Malaysia KLCI Futures (FKLI)!
Overview of FKLI Futures
To begin with, the FKLI futures tracks the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) as its underlying instrument.
The FBM KLCI represents the performance of the 30 largest companies on the Bursa Malaysia Main Market.
How are Malaysia's public-listed companies selected to be included in the FBM KLCI?
According to the FBM KLCI methodology, 2 of the key selection criteria for companies to be included as part of FBM KLCI are:
#1 Free float
Each company is required to have a minimum free float of 15%.
The free float excludes restricted shareholding like cross holdings, significant long-term holdings by founders, their families and/or directors, restricted employee share schemes, government holdings and portfolio investments subject to a lock in clause, for the duration of that clause.
A free float factor is applied to the market capitalisation of each company per the banding specified in the FTSE Bursa Malaysia Ground Rules. The factor determines the attribution of the company's market activities in the index.
#2 Liquidity factor
A liquidity screen is applied to ensure the company's stocks are liquid enough to be traded. The method is based on the calculation of the stock's median daily trading per month.
FKLI Futures Contract Specifications
Below are the specifications of the FKLI futures contract:
Settlement: Cash settled
Value per point: RM50
Minimum price fluctuation: 0.5 index point (RM25)
Contract months: Spot month, the next month, and the next two calendar quarterly months. The calendar quarterly months are March, June, September, and December.
Trading hours: Mon - Fri (Malaysia time)
Morning trading session: 8:45 a.m. to 12:45 p.m.
Afternoon trading session: 2:30 p.m. to 5:15 p.m.
After-hours (T+1) trading session: 9.00 p.m. to 2.30 a.m.
Top constituents in the FBM KLCI
The composition of the FBM KLCI index is reviewed semi-annually in June and December.
As of June 2024, the top 10 constituents by market cap (which makes up of over 60% of the weightage of the index) of the FBM KLCI are:
As of sectorial breakdown, the top 3 sector exposure of the FBM KLCI are the banking sector, utilities, and telecommunication sector:
Why trade FKLI futures?
As a futures product that tracks the most important stock market index in Malaysia, the FKLI futures is one of the most traded Bursa Malaysia futures contracts.
There are several benefits of trading the FKLI futures:
#1 Trade both directions
FKLI futures allow traders the flexibility to express their trade ideas, be it to the upside or downside.
In other words, traders can go long as market display a bullish sentiment, and sell short when market indicates a bearish sentiment.
#2 Access to leverage
FKLI futures also provide leverage exposure to traders, which allows traders to trade the FKLI futures with a relatively small initial margin, which would magnify the profit (or loss) with any change in price.
#3 Hedge against unfavorable price movement in the equity markets
FKLI futures also allow investors that have position in the equity market to hedge against a negative price movement in their existing position.
For instance, investors can take a short position in FKLI futures to cover the losses (be it fully or partially) that they are experiencing from a negative price movement in the equity market.
#4 Regulated by Securities Commission
Since FKLI futures is a product regulated by the authority, it provides a safe and transparent manner for traders to express their trade ideas in the equity market.
How to trade FKLI futures?
It is easy to gain access to the FKLI futures. Simply open a futures trading account from reputable futures brokers that allow access to Bursa Malaysia Derivatives products.
Verdict: Express your conviction in the Malaysia equity market via FKLI futures!
The FBM KLCI is the market barometer that reflects the biggest listed companies in the Malaysian stock market.
As such, traders who are looking to gain exposure to the FBM KLCI can look to the FKLI futures as it provides unparalleled directional and margin flexibility.
In the next article, I will go through how a trader could use the concept of seasonality to trade FKLI futures - stay tuned!
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Disclaimers
Any of the information above is produced with my own best effort and research.
This post is produced purely for sharing purposes and should not be taken as a buy/sell recommendation. Past return is not indicative of future performance. Please seek advice from a licensed financial planner before making any financial decisions.
Leverage is a financial tool that comes with its advantages and risks. Please learn and understand both the upsides and downsides of leverage before using it for trading.
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