VinFast, Arm, and Other IPOs Risk Becoming Index Orphans, Highlight Passive Effects on IPO Market

The Wall Street Journal reports that companies that recently completed their initial public offerings (IPOs) face the dilemma of which stock index they qualify for. In an investing world where passive funds are the dominant force, becoming a component of a major index, like the S&P 500 in the United States, the FTSE 100 in London, or some other indices like those from MSCI means the difference between a firm’s shares enjoying a steady stream of flows from passive investors or being left in limbo with no natural buyers.

VinFast Auto, a Vietnamese company that manufacturers electric cars, recently went public but since the shares were listed outside of the United States, they do not qualify for inclusion in the S&P 500. The company’s stock price surged recently, most likely due to the fact that 99% of the shares are owned by insiders and therefore not available for trading in the market. This is another example of low float driving price appreciation.

Arm Holdings is a British firm that designs popular computer chips for companies like Apple, Amazon, Intel, Nvidia, Google, and Microsoft. The company expects to list its shares on NASDAQ, but it too will not qualify for the S&P 500.

The article explains the importance of index inclusion due to the fact that academic studies confirm a boost of between 2.8% and 8% in a stock’s price once it is included in the S&P 500.

Read the article here [free WSJ subscription required)

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