Deutsche Post is expected to join the blue-chip Euro STOXX 50 for the first time at the index’s end-August review, fuelling buying interest from investors that track the derivatives benchmark.
The world’s No.1 postal and logistics group by revenue, whose stock is up 30 percent this year, is seen replacing either German utility RWE or ArcelorMittal, the world’s biggest steelmaker, index analysts said.
This has prompted some traders to buy Deutsche Post shares before the expected change, which would lead exchange-traded fund (ETF) managers, derivatives providers and other passive investors who mirror the index to hold the stock.
The Euro STOXX 50 has more derivative contracts tied to it than any other European index, with open interest on options and futures contracts representing about 855 billion euros ($1.15 trillion), data from exchange operator Eurex showed.
The potential “passive” flows stemming from inclusion in the index would represent about 33 million shares, or the equivalent of nine days’ trading for Deutsche Post’s stock, according to Societe Generale analysts.
Traders’ positioning on RWE and ArcelorMittal has been mixed, however, after shares in the steelmaker - seen as certain to be dropped from the index a few weeks ago - surged 25 percent between early July and mid-August.
Short-selling data from Markit indicates slightly more interest in shorting shares in RWE than in ArcelorMittal, a sign that RWE is seen as losing its index slot. RWE has 2.7 percent of its shares out on loan, up from a week ago, versus 2.3 percent for ArcelorMittal, slightly down from a week ago.
“The inclusion of Deutsche Post looks pretty much like a done deal, and the main question for index trackers now is: which stock will it replace?,” Exane BNP Paribas index analyst Christophe Wakim said.
“ArcelorMittal looked like the obvious delete, but it has recovered recently, while RWE is going nowhere. We’re expecting a surge in trading volumes on these stocks ahead of the review, because people will try to anticipate the reshuffle.”
Shares in RWE, hit by plunging wholesale power prices, are down 33 percent in 2013. ArcelorMittal’s stock, down 24 percent on the year, has lost 6 percent this week, halting a six-week rally, which makes the index’s rejig difficult to forecast.
Deutsche Post has a market value of 26 billion euros ($34.7 billion), versus 16.3 billion euros for ArcelorMittal and 12 billion euros for RWE. Market value is one of the criteria for index inclusion, along with free float and liquidity.
When a stock joins an index, volumes jump due to a spike in demand from ETFs and derivatives providers. Arbitrage traders try to anticipate rejigs by buying potential entrants and shorting potential deletes.
Results of the index’s annual review will be announced late on Aug. 30 with changes effective from Sept. 23, a STOXX spokeswoman said. STOXX conducts one major review a year but a sharp fall in a company’s share price or market capitalisation could see it dropped from the index at quarterly reviews primarily devoted to weighting adjustments. (Reuters) -