[Asia Economy Reporter Kwon Jae-hee] It is anticipated that when electric vehicle manufacturer Tesla is included in the Standard & Poor's (S&P) 500 index on the 21st of next month, more than $100 billion (approximately 110.5 trillion KRW) will be traded solely in automobile stocks, including Tesla shares. This is because funds such as ETFs will need to restructure their portfolios according to the market capitalization weights of the S&P constituent stocks due to Tesla's inclusion. The Wall Street Journal (WSJ) reported on the 29th (local time) that Wall Street is already bustling with the expected upward effect on the S&P index from what is considered the largest inclusion in S&P history.
Previously, S&P Dow Jones Indices announced that, unusually, it would discuss with the investment industry whether Tesla should be fully included on the rebalancing effective date or included in two stages.
This is because Tesla is regarded as the largest inclusion in S&P history, and it is expected to account for at least 1% of the S&P 500 index upon inclusion. Tesla is expected to become the sixth-largest company among the S&P 500 constituents, following Apple, Microsoft (MS), Amazon, Alphabet, and Facebook.
Goldman Sachs projected that Tesla's stock price would rise by about 2% to reach $600 per share around the time of its inclusion in the S&P 500 index.
Accordingly, Wall Street expects more than $100 billion to move due to Tesla's inclusion. According to S&P Global, assuming Tesla's index weight is 1%, passive funds alone would need to purchase approximately $51 billion worth of Tesla shares. This represents about 10% of Tesla's market capitalization. Passive funds are those that buy stocks in proportion to their market capitalization within the S&P 500. ETFs are a representative example of passive funds, and trading of ETFs is also expected to become more active due to Tesla's inclusion.
WSJ, citing traders, reported that index funds would sell between $60 billion and $80 billion worth of small-cap stocks depending on Tesla's market capitalization and buy an equivalent amount of shares from automobile manufacturers.
Goldman Sachs stated that funds linked to the S&P 500 are expected to purchase about $8 billion worth of Tesla shares due to Tesla's inclusion.
There is also growing anticipation that Tesla's stock price will rise further due to the S&P inclusion effect. Historically, stocks have risen after being included in the S&P 500. For example, Facebook's stock price increased by 16% in the three months following its inclusion, and Netflix's rose by 37% during the same period.
Along with Tesla, there is optimism that the overall New York Stock Exchange will gain momentum from upcoming initial public offerings (IPOs) of major companies. The world's largest accommodation-sharing company Airbnb and the largest food delivery company in the U.S., DoorDash, are the main players, with valuations being discussed higher than initially expected. Airbnb was initially discussed at $30 billion but is now expected to be valued between $30 billion and $33 billion, while DoorDash is expected to be valued between $25 billion and $28 billion, higher than the previously estimated $25 billion.
Meanwhile, the S&P 500 index has risen 13% so far this year. The companies to be excluded from the S&P 500 due to Tesla's inclusion have not yet been announced.
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