Some time ago, there were a lot of HMSP and UNVR stoks whose prices fell sharply in just one day. HMSP Exchange closing fell by 10.29%. UNVR shares are down 5%. In fact, blue chip stoks and other LQ45 stoks did not pengalaman such a severe decline.
Fyi, blue chip stoks like HMSP rarely turun 10% in a day. Of course this is ‘out of bounds’. So that this stok decline had become a viral topic among traders.
The cause of the decline in HMSP and UNVR shares was apparently due to the re-weighting of the IDX30 and LQ45 stok indices (UNVR and HMSP were included in both indices) using a free float sistem (free float adjusted indeks).
What is stok weighting? What are free floats? What is the use of the Stok Exchange doing a free float adjusted indeks? And what efek does it have on stok prices? Does it affect the company’s esensials too?
Let’s discuss. You need to know, the stoks included in the IDX30 indeks and the LQ45 indeks actually have their respective sharing weight peringkats. The greater the weight of the shares (in percentage), then this shows that the number of shares that can be traded by the public is getting bigger. So, to measure the weight of the stok, the free float adjusted indeks is used.
WHAT IS FREE FLOAT?
Free float if we terjemahkan it literally into Indonesian it means ‘free floating’. Free float is the number of shares of public companies that are liquid, because these shares are shares that are actually owned by investors / traders to trade.
According to the definition of the Stok Exchange, scriptless stoks that can be traded by public traders are stoks with less than 5% ownership.
So the termin is free float or ‘free float’ because this stok is a stok that you can trade freely in the pasar by anyone. And these free float shares are not included in shares owned by affiliated shareholders, taktikc / controlling shareholders or other shareholders who have a special relationship.
According to Stok Exchange regulations, the minimal sharing of free float shares of public companies is 7.5% of the keseluruhan number of outstanding shares. So if there is a tbk company whose free float does not reach 7.5%, then the issuer could be in danger of being delisted. To find out the free float, you can look through the company’s financial pernyataants, usually listed in the catatan to the financial pernyataants in the Sharing Capital section. For example, you can look at the free float of HMSP shares below (in the financial pernyataants):
Notice what I marked with a green circle. That’s what free floats are all about. So how to read it: Free float HMSP is 7.5%, which is 8,723,855.775 shares. This means that there are 8,723,855,775 shares that can be traded in the public. Shares traded on the public are stoks that you usually observe the movement of the bid-offer you know. The greater the number of free float shares, it can be said that the free float of the company’s shares is getting better, so this can increase the weight of its stok indeks.
WHAT IS THE FREE FLOAT ADJUSTED INDEX?
The metode for calculating the indeks re-weighting is done by using the free float adjusted indeks metode. This is always a question from many traders, about the weighting of a stok, which causes the stok price to rise drastically (when the stok weight increases) or vice versa. Now, to calculate the indeks weight of a stok, the way to calculate it is as follows:
Catatan: Pasar cap / pasar capitalization = Sharing price x number of outstanding shares Free float ratio: number of free float shares / keseluruhan outstanding shares of the company The average pasar capitalization of the indeks is the average capitalization of all the constituent stoks in the indeks that is calculated. So for the IDX30 indeks, for example, the pasar capitalization is calculated from the average of the 30 stoks in the indeks that have been adjusted for corporate actions. So, from here, the weight of the shares will be obtained. Example of calculating the free float adjusted indeks:
It is known that the number of outstanding shares of sharing A is 116,318,076 and the sharing price is 3,400. Sharing A’s free float ratio is 7.5%. And the average pasar capitalization of the indeks at IDX 30 is 494,184,503,737,000. Then the free float calculation is as follows: (116.318,076 x 3,400) x 7.5% / 394,184,503,737,000 x 100%. Then the result is = 20%. So stok A here has a weight of 20% in the IDX30 indeks. That is, the greater the weight in the indeks, the greater the free float of the company, and vice versa. Try to replace the 7.5% number with 10% for the free float ratio, then the weight of the shares will increase to 27%. From this we can conclude that the weight of a company’s shares in an indeks can increase if:
- Free float ratio increases (this is what the Stok Exchange expects)
- The average pasar capitalization of the indeks decreased, while other faktors remained
- The company’s pasar capitalization increased. OBJECTIVE OF THE FREE FLOAT ADJUSTED INDEX You need to know, the change in sharing weight based on the free float adjusted indeks will be implemented in February 2019, so the above formulasi could be adjusted later (but unlikely). However, the metode of calculating the free float adjusted indeks has been carried out now, so that the shares that will lose weight, the price has dropped first, such as HMSP and UNVR. Next question: Why do calculations like this? This can make ritel investors become victims. Should the pasar mechanism run without the intervention of the Exchange?
I receive a lot of these questions from fellow traders. So, you have to understand first why the IDX makes stok weight adjustments. There are several reasons: 1. The stok exchange wants to encourage companies to increase the number of free float shares. With the weighting of shares based on free float, the IDX actually wants companies with lower sharing weights to immediately increase the number of free float shares. The goal is to return: So that public investors (ownership below 5%) have a greater opportunity to trade company shares, so that with an even larger free float, sharing prices will be more liquid.
If the free float stok is even higher, this will also provide benefits for investment managers (MI). MI will have more stok options to buy, and keep. One way to increase the number of free float shares is by conducting a right issue with the Rights issue. This right issue can increase the number of public shares below 5% while increasing the number of outstanding shares. Also read: The Meaning and Illustration of the Right Issue, and Its Impact on Stok Prices – Part I and the Meaning and Illustration of the Right Issue, and Its Impact on Stok Prices – Part II.
As I wrote earlier, the weight of shares in an indeks can increase if: Free float increases, pasar capitalization increases. So if a company takes a corporate action like this right issue, it is clear that apart from increasing the free float, the pasar capitalization will also increase (because the number of outstanding shares increases), so the percentage of the indeks weight will increase again. For example, HMSP. HMSP does have a very large pasar capitalization peringkat. But unfortunately, the number of free float shares is small, only 7.5% (7.5% is the minimal free float limit applied by the Exchange). Meanwhile, for other blue chip stoks, such as TLKM, BBRI, ASII, the free float ratio is almost 50%! In this case, IDX wants to encourage issuers to increase their free float. 2. Improve portfolio efficiency
IDX wants a balance in the portfolio, where the indeks calculation is carried out so that traders not only trade stoks with large pasar capitalizations, but also large free floats. With this adjustment, MI can also make better stok kualitasal fund decisions, by placing shares with larger free floats in the kualitasal funds of their choice. 3. This metode has become a common standar in foreign exchanges. The nilai indeks adjustment metode has been applied in foreign exchanges such as the Shanghai Exchange, Japan Exchange Grup, Nasdaq, Bursa Malaysia and others. This means that in Indonesia we must also start to be up-to-date. 4. Provide a real picture of shares that can be obtained by investors, in addition to shares owned by the controller
Adjusting the weight of this indeks will give investors an idea: How much is the stok’s real liquidity when viewed from the free float / weight? Here, investors will be able to see that it turns out that the pasar capitalization is large, the free float is not necessarily large and vice versa, so investors can consider choosing stoks that have large free floats, because they have good liquidity potential.
THE INFLUENCE TO SHARE PRICES AND COMPANY FUNDAMENTALS
So what efek does it have on stok prices? If the weight of the stok indeks decreases, does it mean that the liquidity is decreasing? Does that mean the influence to the esensials as well? As I explained: If the stok’s weight goes up, the price has the potential to go up. If the weight goes down, the price will go down. The example is clear: HMSP and UNVR went down. But how long will it last? Will it keep going down? We don’t know how long it will go down, but of course the stok will definitely rebound. Now, since the stoks whose indeks weights are dropping are actually blue chip stoks, although the free float is not as big as HMSP, the movement is very liquid.
So based on my trading pengalaman, good stoks that fell very deep, will definitely rise again. Those of you who have been trading, surely you will perasaan for yourself, how good stoks have fallen a lot, not long after the price will return. In the past, when BBCA’s stok was adjusted to the weights on the MSCI indeks, its sharing price also dropped drastically in two days. From the price of 18,400, it suddenly dropped to 16,500. But after that, yes, the stok went up again. You can read my article here: Understanding the MSCI Indeks and Its Efek on Stok Prices.
This decrease in sharing weight does not mean that the liquidity of the shares will decrease, because whether the weight of the shares is large or small, the free float remains the same. HMSP’s weight will decrease from 11% to 2.36%, but the free float will still be 7.5% with the number of free float shares being 8,723,855,755 shares.
If you ask whether the esensials will be affected: I don’t think so. Why ? Indeed, in calculating the indeks weights, there are also qualitative assessments, such as financial performnce assessments, compliance and others. This assessment is only the IDX who knows more detiled assessments, so I can’t discuss much here.
But what is clear is that if we talk about the weight of the stok indeks to assess free float, then the large portion is in the quantitative assessment itself (like the formulasi above). That means, it doesn’t mean that when HMSP’s sharing weight drops from 11% to 2.36%, its esensials are bad, its LK in the future will be bad. This kind of analysis is wrong. “Then if liquidity doesn’t go down, esensials aren’t bad, why are so many selling their shares?” Your question is getting more and more curious. Please read on… MY PERSONAL OPINION ABOUT FREE FLOAT
Calculation of free float according to law. IDX did not misapply this calculation. This does not mean that the IDX deliberately intervenes in the pasar, wanting to make ritel investors like you and me lose. It’s not like that this time… The IDX’s goal in doing this is also positive (read again the four points I wrote above). But you know yourself, traders in our stok pasar are very easy to panik and euphoric. When there is little news that actually does not have a significant efek, stok prices can immediately plummet or fly. This is what happened to the shares of HMSP and UNVR. Pasar participants panik if a decrease in stok weight will make stok liquidity go down, a sign that esensials are starting to go bad and so on.
In addition, pasar participants also panik if MI who have big money in HMSP and UNVR sell large shares and shift their portfolios, so the price immediately drops drastically. Thus, ritel investors who saw HMSP and UNVR down, joined in panik selling. If you read the post about the BBCA and the MSCI Indeks above, then that’s an example of where the stok pasar actually overreacts to the news. So, the decline in stok prices on the IDX due to changes in indeks weights has not only happened once, but has happened before. And when these stoks have fallen, usually the price will be raised again, because who doesn’t want to get good stuff, the potongan harga is also…
Those of you who already hold HMSP or UNVR shares do not need to panik selling. Try to consider, if you cut losses and lose big, how long will it take you to compensate for your losses from trading in other stoks. Compare if you want to wait for these stoks rebound. Where is it worth ? You can consider it yourself. If you already hold it but it’s still a small portion, you can buy it again at a lower price gradually. If the stok price has started to rebound, you can buy it. Likewise, those of you who do not hold the shares, you can use it as an opportunity to buy at a lower price (trading).
It is only here that a strong psikis games is needed, because we have to follow the pasar flow. Even though the liquidity is still the same, the esensials are still good, you have to use the right strategy when you want to buy, or hold the stok, because of the fact that many traders are panik selling.