Stocks reranked in new NZX model

JASON KRUPP
Last updated 10:54 20/03/2012

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Some of New Zealand's top stocks will undergo a ranking reshuffle later this year when share market operator NZX moves to a pure free float weight system.

Under the changes, the NZX will calculate the market capitalisation of its listed constituents based on the number of shares broadly available at any one time, and exclude majority stakes held by single parties.

"NZX Indices considers such an approach is both simpler than the existing modified free float methodology and is aligned with the indexed share practice for other international indices," the company said in a statement.

"It also provides a clean, understandable and true representation of New Zealand's investible market."

Under the changes coming into force in June, Fletcher Building and Telecom will maintain their position at the top of the NZX50, while Contact Energy will slip from third place to fifth.

The NZX cautioned that this reweighting could cause some price volatility as investors shift their asset allocations to match the new rankings.

The changes follow a review in February which saw 86 per cent of listed issuers, brokers and fund managers push for a change in the ranking methodology. Of those, 94 per cent were in favour of a pure free float model.

In addition to the new methodology, the securities market operator is also introducing an additional liquidity measure.

After the June quarterly review, only those securities that trade 2.5 per cent or more of their average market capitalisation in a six-month period will pass the test, which excludes strategic holdings of 20 per cent or more.

The bourse operator is also set to launch the new NZX 20 Index on April 23.

The new index will use the same ranking and liquidity methodologies as the benchmark NZX 50 Index to determine weightings, as well as the additional requirement of a 15 per cent weightings cap.

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- BusinessDay.co.nz

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