Money Floods Into SpaceX: The Dilemma of Passive Investment Funds

Additional Purchase Orders Flow in After Presentation
Expected Corporate Valuation: $1.8 Trillion
Passive Funds May Flow In Two Weeks After Listing
Stock Price Increase Could Trigger Further Buying

Institutional investors are rushing to place orders for SpaceX ahead of its initial public offering (IPO). However, market participants are expressing concerns that this IPO could do more than simply generate excitement—it could lead to stock price distortions due to large inflows of passive investment funds.

According to Bloomberg News on June 9 (local time), the IPO of SpaceX, led by Elon Musk, is seeing institutional investor demand that is several times higher than the available supply.

The IPO underwriters announced that additional buy orders came in following a management presentation for institutional investors held that morning. It was reported that some institutions each submitted orders exceeding $10 billion (approximately 15.3 trillion won).

SpaceX will finalize the IPO price on June 11, and trading will begin on the Nasdaq under the ticker 'SPCX' starting June 12. The company plans to offer 555.6 million shares at $135 per share (about 210,000 won), aiming to raise approximately $75 billion (about 114.5 trillion won). The anticipated company valuation is around $1.8 trillion (about 2,747.7 trillion won). This represents the largest IPO ever, far surpassing Saudi Aramco's $29.4 billion (about 45 trillion won) in 2019.

The issue is that a massive influx of passive funds is expected immediately after the listing. This is because some index providers have recently changed their rules, significantly moving up the inclusion date for newly listed stocks.

For example, in the case of the Nasdaq 100 Index, previously a newly listed stock had to wait about three months before inclusion, but now it can be added as soon as 15 trading days after listing. Accordingly, Nasdaq, FTSE Russell, and MSCI all plan to add SpaceX to their major indices early.

Intropic, an index rebalancing analysis firm, projected that passive investors will hold about 30% of SpaceX's total floating shares just 15 days after trading begins. If the previous rules had remained, this figure would have been only about 4%.

Market participants believe that this structure could further fuel stock price increases. As SpaceX's market capitalization grows, its weight in the indices rises, and as its index weighting increases, index funds will have to purchase more shares. Bloomberg pointed out that this could create a "reflexive loop," where rising share prices generate additional buying demand.

Marco Sammon, a professor at Harvard Business School, commented, "This is a case where the method of index inclusion itself can have a greater impact on prices than company fundamentals."

He especially analyzed that the early inclusion system could exacerbate the problem. Typically, hedge funds and market makers play a buffering role by securing shares before index inclusion and supplying them to index funds, but if the inclusion period shortens, this buffer effect could weaken.

In fact, Professor Sammon's research team found that in the past, IPO companies that were added to indices early recorded an average return that was 5 percentage points higher before inclusion, but much of these gains were reversed within three weeks. Bloomberg described this phenomenon as a "shadow tax" effect, where passive investors are effectively forced to buy at higher prices.

The SpaceX IPO is also closely tied to the ongoing AI investment boom. OpenAI, which competes with SpaceX's AI division xAI, submitted a confidential listing application the previous day, and Anthropic has also recently started its listing process.

Bloomberg estimated that if SpaceX, OpenAI, and Anthropic all go public, the total new market capitalization added to U.S. stock markets would reach $3.6 trillion.

Intropic analyzed, regarding the SpaceX IPO, "Although the price impact of passive flows is likely to be short-term, it can disrupt the IPO price discovery process, which is the most important moment in a company's stock market journey."

This content was produced with the assistance of AI translation services.