Winners and losers in revised global index

By SIMON LOUISSON

Five New Zealand stocks are winners while two lose out in the revised provisional Morgan Stanley Capital International (MSCI) share index published over the weekend.

The index is important as it is used to benchmark funds, particularly passive funds, and managers of the heavyweight foreign pension funds often use it as a prime guide for investing in New Zealand.

The new index, to be known as the MSCI Provisional Index Series, has been expanded to included 14 New Zealand stocks from the previous 11.

Globally, the index will include 2258 securities versus 2066 in the old index.

New Zealand made up just 0.1 per cent of the MSCI standard index (the old index) and that weighting is expected to fall even further to an estimated 0.067 per cent.

The new index has been modified to weight stocks so that only the value of the freely available shares are included. Carter Holt Harvey's weighting, for example, under the new methodology is only 49 per cent of its capital, as International Paper owns 51 per cent of the company.

Two stocks are dropped from the provisional index - Rubicon and Brierley Investments, while Air NZ Bs, Baycorp, INL, Sky City and Tower have been added.

Rubicon had been included as a stop gap to replace Fletcher Energy but drops out because it has insufficient market capitalisation and Brierley is ditched because it is Singapore-based.

Some funds, particularly passive ones, will adjust the weightings in their portfolio to reflect the provisional MSCI immediately.

Morgan Stanley said its revised index series aimed to target 85 per cent of "free float adjusted market capitalisation" in each industry group within each country.

The new index would be introduced in two phases - as at the close of November 30, 2001 and May 31, 2002, respectively - to ensure flexibility in the transition to MS' new measurement.

The old and new series would run side-by-side until May 2002, which Morgan Stanley said should limit near-term price impacts.

JP Morgan analyst Jason Todd expressed surprise at some of the calculations of the free shareholding, noting in particular that The Warehouse was weighted at 70 per cent of total capitalisation when company founder Stephen Tindall and the Tindall Foundation together held 56.7 per cent, leaving less than 43.3 per cent of the stock available.

The total market capitalisation of the New Zealand component of the MSCI drops 15 per cent, from $22.2 billion to $18.9 billion, while the total capitalisation of the index drops by over $1.41 trillion after discounting for untradable holdings.

Of the present New Zealand index members, Mr Todd said Carter Holt Harvey was the biggest loser, with its weighting falling by 5.9 percentage points to 8.3 per cent. This is followed by Telecom, down 3 points to 44.3 per cent and Contact Energy, down 2.3 points to 5.5 per cent.

Fisher & Paykel, up 0.5 points to 5.6 per cent and Fletcher Building, up 0.63 points to 4.3 per cent, appear to be the biggest winners.

JP Morgan head of equities John Rattray said that indications of the makeup of the new index had propelled stocks such as Sky City and Tower in the past few weeks. Sky City hit an all-time high of $10.20 on Friday, while Tower yesterday hit a year high of $5.80.

The US weighting will rise from 49.1 per cent to 55.3 per cent and the UK, with the next highest weighting, rises to 10.4 per cent from 9.3 per cent.

- NZPA