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Donald Keith, London-based deputy chief executive officer at FTSE, says the framework for the indices has been completed. WhatÆs left to be done is the gathering of accurate free-float information û which tends to be a challenge in emerging markets û and finalising the composition of the indices. FTSE factors in a stockÆs free-float or shares available to investors when creating and maintaining indices.
ôWeÆre not plucking these indices out of the air. The users want the degree of transparency and predictability of the indices because they believe this will help develop the market and the use of index products,ö said Keith.
Initially, FTSE expects to create six indices, including a large-cap index, a mid-cap index, and a small cap-index. The other two indices will combine various stocks, the first one being a large-, mid-, and small-cap index and the second one being a mid- and small-cap index.
The decision to create those six indices was based on FTSEÆs consultations with index users in Thailand, Singapore, and Hong Kong.
The large-cap index will be composed of the top 30 stocks in ThailandÆs main board in terms of market capitalisation. The mid-cap index will consist of the top 90% of the stocks in terms of market capitalisation and the small-cap index will consist of the top 98%. The lowest 2% in terms of market capitalisation will make up the fledgling index.
There are more than 400 stocks on ThailandÆs main board. Around 167 of those stocks will be excluded from the indices because they have not met FTSEÆs liquidity requirements, while 170 of those stocks fall in the category of the fledgling index.
FTSE believes the new indices will attract more international and domestic investors to the Thai stock market. The indices are expected to serve as the basis for the creation of index-linked products such as derivatives and exchange-traded funds.
Whether or not the indices and the products that will be created based on those indices will generate a significant increase in inflow to the Thai stock market remains to be seen.
Thailand recently launched its very first ETF, the ThaiDEX SET50 ETF, which began trading 6 September using the TDEX trading symbol. The TDEX tracks the SET 50 Index, which is made up of the top 50 Thai shares in terms of market capitalization. During an initial public offering period in August, the TDEX attracted around Bt1.011 billion ($32 million) in investments.
One Asset Management, the fundÆs manager, initially projected the IPO demand for the TDEX at Bt2-3 billion. The fundÆs registered capital was set at Bt5 billion.
FTSEÆs Keith says itÆs premature to judge the appetite for ETFs in Thailand based on the TDEX IPO.
ôThis is the first ETF in the Thai market,ö he says. ôSometimes it takes a while to understand them, to get used to them, to recognize the value, and to find appropriate uses for them. ThereÆs a temptation to ask whether (the ETF) is going to be a success or a failure. I think itÆs too early to say.ö
Meanwhile, he adds, FTSE may also create sector-based indices for the SET beyond the first quarter of 2008, depending on demand.
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