The European Commission is targeting the development of an equity index family covering all listed companies in the EU, flagging the possibility of the emergence of a “Capital Markets Union asset class”.
The aim is to facilitate increased investment in a large pool of companies, including small and medium-sized enterprises (SMEs), in particular in the Baltics and central, eastern and south-eastern Europe.
These represented the bulk of companies listed in the EU in recent years, but typically were not included in EU-wide equity indices calculated by international index providers, the Commission said in a tender document for a feasibility study for the creation of a CMU equity index family.
In addition, in recent years institutional investors had shifted their attention to larger and more liquid listed companies, to the detriment of smaller listed companies and markets, it said.
Classifying certain EU countries as frontier markets prevented institutional investors from being able to allocate to them, the Commission noted, highlighting Bulgaria, Croatia, Estonia, Latvia, Lithuania, Romania, Slovakia, and Slovenia.
Estonia, Lithuania, Romania and Slovenia are included in MSCI’s frontier markets index family, while Bulgaria is a standalone index, but based on MSCI’s size and liquidity criteria for frontier markets.
“The creation of an EU-wide CMU index could facilitate greater local and foreign capital inflows from a broad range of investors and enhance access to finance for a larger pool of companies, especially SMEs,” said the Commission. “SMEs in all countries and more generally in small capital markets could benefit from such [a] broadly defined and inclusive index.”
The possible emergence of a “CMU asset class” could also help overcome different country classifications at EU member state level, the Commission added.
The Commission cited the Wilshire 5000 Total Market index in the US as a possible example of what the CMU index could look like. The Wilshire 5000 is a market cap-weighted index of all stocks actively traded in the US.
The feasibility study should develop the conceptual framework for a CMU index family and assess its market potential, according to the tender document. The market potential assessment should be based on “extensive market research and surveys among relevant institutional investors who should be also tested for the acceptance of the newly designed index”.
“The analysis should pay special attention to asset manager institutions who act as opinion leaders for end institutional investors,” added the Commission.
The index should comprise companies listed on regulated markets and SMEs listed on growth markets, it said, and there should be sector or thematic sub-indices. These should cover “strategically important areas”, such as fintech or sustainability.
The deadline for applications is 8 February and the documents are available here.