Merkado Barkada
September 22, 2023 | 9:55am
As I covered in yesterday’s post https://www.philstar.com/stock-commentary/2023/09/22/2298203/mixed-reactions-investors-about-cycle-deletion-ap-and-mpi-psei, the PSE decided to remove Aboitiz Power [AP 30.00, down 2.4%; 1465% avgVol] and Metro Pacific [MPI 5.10, down 0.2%; 1% avgVol] from the PSEi in an off-cycle rebalancing, effective September 26. While AP’s recent activity had brought its public float below the minimum required for PSEi inclusion, and while MPI is scheduled to obliterate its public float through a successful tender offer and delisting, it seems as though this quick action by the PSE has caught some investors and professional analysts off-guard. Some thought that the PSE would only make changes during its semi-annual review periods (February and August), and would wait to remove and replace these stocks in February. Those traders and analysts were operating under the belief that the PSE would give AP time to cure the self-inflicted public float problem in time for the February review to retain inclusion in the PSE. Other reactions focused on the premature removal of MPI, that it was targeted for removal despite still being open for public trading.
MB bottom-line: My trading strategy doesn’t involve playing PSEi rebalancing, so I don’t have any skin in the game of trying to piggyback the enormous flows of money in and out of the stocks that are being added and subtracted from the PSEi, nor do I have a strong feel for whether the PSE’s announcement is out-of-bounds relative to its past behavior. Based on my observations of those who do play this game, and of those who do have a strong feel for how it’s played, it seems like this announcement is an outlier to consensus expectations. To me the timing seems calibrated around the Cross Date for MPI’s tender offer; on that date, MPI’s public float will fall below the PSEi’s inclusion threshold (20%) and fall below the PSE’s minimum public ownership threshold (10% for pre-2017 corps). I can see the (thin) logic of immediately removing a company like MPI that is suspended and delisting, but I don’t know that batching AP in with MPI makes a great deal of sense in a way that fosters certainty and trust in the process. If breaching the PSEi inclusion threshold is grounds for off-cycle removal, why wasn’t AP removed as soon as it breached? Why would the PSE wait until the 26th to make the change? Are companies in AP’s position usually allowed to remain in the PSEi for the remainder of the review period to give them a chance to cure, or is there some other factor that made its continued inclusion impossible? As we go forward, and as the number of post-2017 companies increases that have minimum public ownership thresholds that match the PSEi inclusion thresholds, will they be treated like MPI and be immediately removed if they breach the 20% public float rule, or will they be given time to cure while suspended? While there may be opportunity in uncertainty, I think the PSE can do more to communicate how this works and why it’s taken the actions that it has.
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