SP New Energy crushed on MSCI deletion

SP New Energy [SPNEC 1.06, down 6.2%; 150% avgVol] [pdf link] fell more than 6% yesterday as traders digested the MSCI Global Small Cap review results that indicated SPNEC would be deleted from the index, effective June 3. Cebu Pacific [CEB 29.50, down 1.8%; 113% avgVol] is also scheduled for deletion from the index, while ACEN [ACEN 5.00, up 9.4%; 478% avgVol] was selected for inclusion. Aboitiz Equity Ventures [AEV 37.00, down 3.5%; 458% avgVol] was deleted from the MSCI Global Standard index.

MB bottom-line: While the majority of people that I know don’t specifically trade index rebalancings, we are all impacted by these additions and deletions to some degree or another, so I think it’s important to flag when these rebalancings happen to make the markets seem just a little less random. For those unfamiliar, if you consider all the potential buyers of PSE stocks as just one room of buyers in the global “building” of potential buyers, getting added to an index is almost like getting credentials to access an entirely new room of potential buyers. Adding new buyers to the mix will drive up the stock price since the number of outstanding shares has not changed, only the number of interested buyers. That’s what is often referred to as “inflow”. Conversely, losing those new buyers will cause a drop in the price as due to the selling pressure from their need to exit their positions in anticipation of the stock losing its “credential” to access the room. That’s “outflow”. I know it’s a goofy analogy, but it can help new traders gain familiarity with all this talk of “inflows” and “outflows” around rebalancing moves.

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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.