Thursday, February 17, 2011

Significance of EPF in dictating the KLCI Index

I have always been wondering the significance of EPF's fund to the KLCI Index. I know they have a big say, but how much?
In most reports, analysts have always play the importance of foreign funds in dictating the market strength in Bursa Malaysia. Those are crap actually! In my blog here, I am to show you they play a much lesser importance than our EPF. Here's why:

Based on the above, what is KLCI (Kuala Lumpur Composite Index)? It is consisting of mainly the Top 30 companies in Bursa where the composition is as per above as at 31 Dec 2010. As you can see the market capitalisation then was RM481.5 billion.
Now what about the amount of money EPF puts into the equity market, please see below:

Assuming 95% of those highlighted in yellow are invested into Malaysian market and out of that 80% are into the KLCI companies. Hence RM108.92 billion (RM143.31B x 95% x 80%) are probably invested into the KLCI i.e. Top 30 companies. (I do not have the actual numbers, but I am presuming these are pretty close.)
Now, what do you think would the % of free float be for the KLCI companies? 30% perhaps - which comes to RM481.449B x 30% = RM144.434 Billion. This hypothesis shows that EPF has a staggering 75% say in the KLCI Index. Hence who dictates the market. You and I who contribute to the EPF funds actually, and we indirectly contribute to make them look good - performance wise.
And I was reading somewhere that EPF funds is compounding at 8% per year due to more and more Malaysians are getting into the workforce as well as our pay gets higher per capita wise on an annual basis. Hence you think getting a compounding 8% at minimum for the KLCI index is difficult.
From this, I think I can be a top performing fund manager for EPF too. Does not need Shahril Ridza, who?

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