LONDON -- Certain European stocks were hard hit on Tuesday as the firm that compiles the Stoxx indices, such as the
Dow Jones Stoxx 50 Index
, announced that at long last it would recalculate the indices to take into account only the constituents' free float (the percentage of market cap available to investors) and not the full market cap.
What this means is that passive or index-tracking investors, who previously were obliged to own a large proportion of the available supply, thereby increasing the scarcity of stock for other investors, will now have to reweight their portfolios accordingly.
The majority of shares to fall foul today were large stocks with a low free float and a full market cap weighting: read former incumbents such as
. Late in the afternoon, Deutsche Telekom was down 2.39 euros, or 4.1%, at 55.90 ($54.22) and France Telecom was down 7.62 euros, or 5.1%, at 141.14.
up 1.91 euros, or 3.5%, at 56.91,
up 6.55 euros, or 4.0%, at 168.55 and
Total Fina Elf
up 4.40 euros, or 2.7%, at 169.70.
Mark Howdle of
Schroder Salomon Smith Barney
, who described in a recent report that this issue is a "Damoclean sword hanging over some of Europe's largest stocks," believes that the companies that compile other indices such as
will follow suit within the next couple of months.
Therefore, Howdle argues, active investors should get much nearer to a free-float weighting in the stocks such as
, which would mean significantly underweighting them against an FTSE, MSCI or STOXX benchmark.
The result of all this meant most of Europe's other major stock markets were lower late in the afternoon, with the
in Paris down 39.4, or 0.6%, at 6,469.1, and the
in Frankfurt down 9.3, or 0.1%, at 6,949.7.
In London, with the absence of any U.S. influence, most U.K. investors sat on their hands and by late afternoon the
was down 46.2, or 0.7%, at 6,424.2.
The most interesting stock was games publisher and developer
, which surged 51.75p, or 10.6%, to 538.75 ($8.19) on reports the company that brought you
is in early stage merger talks with
, the French software group.
The pharmaceutical sector was less lucky as news emerged that
will have to put warnings on its new drug Lotronex and brokerage
duly downgraded its sales forecast for the drug. Glaxo was down 42p, or 2.1%, at
19.78, and merger partner
shed 18p, or 2.0%, at 889.5.