FINLAND – The Finnish Traded Stock Index (FOX) is to tighten its stock weighting rules and is also likely to adopt free float as its basis for overall calculation by August 1, 2001.
Fox says that the allowed weighting of a single stock in the index - calculated on a continuous basis from the most recent prices of the 25 highest traded shares on the Helsinki Exchanges - will be lowered to 10% from its current 20% limit.
Technology shares will be the main losers, which according to Jari Mustonen, index analyst at the Helsinki Exchanges is really the whole idea of lowering the limit: “The index is almost like a ready made investment portfolio, with the 25 most exchanged shares in it. You can’t find a brief anywhere with 40% invested in just two shares, which Nokia and Sonera account to.”
The technology weighting of the index will fall around 10% as a whole.
Nokia’s proportion in the value of the Finnish equity market in autumn 2000 was about 70%, and the companies proportion, without weight limitation, of the market value of the FOX index was over 75%.
“ Due to the calculation process of the index, the effect on large companies with less than a hundred per cent floating is surprisingly low,” Mustonen continues. “Sonera, Fortum and other companies with a large share owned by the state, end up reaching the 10% roof, even if you only calculate the weighting of their free float shares.”
Many index funds follow the FOX closely, which is one reason for the pressure to change to free float from total market capital measurement. “Free float really gives you the idea of what you can trade with,” says Mustonen.
However, the current international trend towards free float is not going to make the Helsinki Exchanges introduce free float to all of its indexes. “It seems to be catching up in the world, but we’re not going to tie the main HEX index, nor any others to free float; just the FOX,” Mustonen adds.
“ The whole idea of the HEX indexes is to reflect the aggregate brief; to show the real size of the companies. If the state owns shares in a company, it too wants to know what’s going on.”
The stock series of the FOX index are checked semi-annually, the next up-date will be on February 1.