Joining the Big Leagues: How Inclusion in a Major Stock Index Can Change the Fate of a Company
When a company is included in an index, it means that the company's stock is part of a group of stocks that are used to represent a particular market or industry. Inclusion in an index is often seen as a sign of prestige, and it can have significant implications for the company and the wider market.
In general, inclusion in an index can have a positive impact on a company's stock price because it increases the company's visibility and makes it more attractive to investors. When a company is added to an index, investors who track the index may be more likely to buy shares in the company, which can drive up demand and increase the stock price. Conversely, if a company is removed from an index, it may experience a decline in demand and a decrease in its stock price.
Let's take the example of GoTo, the Indonesian biggest tech stock is included in two major global indexes, the MSCI Indonesia Index and just recently the FTSE Global Equity Index Series Asia Pacific.
The MSCI Indonesia Index is a widely followed benchmark that includes large and mid-cap Indonesian stocks, and inclusion in the index would make GoTo more visible to investors who track the Indonesian market. As a result, GoTo's stock price could rise as most foreign fund that follow MSCI will buy shares in the company. Moreover, Inclusion in FTSE Global Equity index could increase GoTo's visibility on the global stage, potentially attracting new investors and driving up the stock price.
Overall, inclusion in major indexes can be a significant driver of demand for a company's stock, leading to potential gains for investors who hold shares in the company. However, it's important to note that inclusion in an index is not a guarantee of success, and a company's performance ultimately depends on its underlying fundamentals and market conditions.
OCBC NISP Ventura
February 2023 Newsletter