Volkswagen and Nike Ousted from Indexes... Can They Make a Comeback Like Nokia? [Weekend Money]

Additional Share Price Declines as Passive Funds Withdraw
Most Replacements Are AI and Semiconductor Companies
Nokia Returns After Being Ousted Due to Sluggish Mobile Phone Sales

On September 21, Volkswagen was removed from the Euro Stoxx 50 index, which comprises the 50 leading blue-chip stocks in the eurozone. This is the first time in 15 years that Europe’s largest automotive company has experienced such an event. On the same day in the United States, Nike, the world’s largest sportswear company, was removed from the S&P 100 for the first time in 18 years.

Volkswagen’s share price has dropped to one-quarter of its 2021 peak. This has been attributed to ongoing pressures from U.S. tariffs, overproduction, and sluggish sales in China. Its market capitalization stands at 38 billion euros, just one-eighth of its annual revenue of 322 billion euros.

Volkswagen logo. Reuters Yonhap News.

Nike’s market capitalization shrank from 264 billion dollars in November 2021 to 57 billion dollars. The company’s decision to cut ties with wholesalers such as department stores and multi-brand shoe retailers—choosing instead to sell directly through its own app and stores—proved to be a misstep. Retail shelves once occupied by Nike have since been filled by emerging brands such as On and Hoka.

On the same day, Honeywell Aerospace, Simon Property Group, and Colgate-Palmolive were also removed from the S&P 100. New entrants included Dell, Palo Alto Networks, Arista Networks, and SanDisk. All four new companies are in the information technology (IT) sector. Arista produces switches that connect AI data centers, while SanDisk sells NAND flash memory. SanDisk’s share price has surged more than 600% just this year.

In Europe, automakers continue to exit the index. In September last year, Stellantis was removed, and this year Volkswagen followed. Only three car manufacturers remain on the Euro Stoxx 50: Ferrari, BMW, and Mercedes-Benz.

One of the companies replacing Volkswagen was Nokia. After being removed from the Euro Stoxx 50 alongside Stellantis last September, Nokia made a return. Its share price has more than doubled in the past year, and its second quarter AI infrastructure revenue increased by 105% year over year. This growth was largely driven by its acquisition of Infinera last year, which now allows Nokia to directly produce optical components for AI data centers.

When Removed, Passive Funds Exit Too... Volkswagen Falls Alone Amid Market Rally

Index inclusion or removal does not determine a company’s long-term outlook. The Euro Stoxx 50 selects its components based on the market capitalization of shares actively traded on the market.

However, these changes do have a significant impact on share prices, mostly because of passive investment funds that replicate the index. The primary goal of passive funds is to mirror the index exactly. If they hold stocks that are not in the index, their returns will deviate from the benchmark, so when changes to the index composition are announced, such funds buy or sell accordingly regardless of price. As more funds line up to sell and fewer are inclined to buy, the price naturally declines further.

The sums involved are substantial. There are 30 exchange-traded funds (ETFs) tracking the Euro Stoxx 50, with total assets under management of 59 billion euros. More than 110,000 structured products are also linked to this index. When Volkswagen is dropped from the list, all of this money must be withdrawn from Volkswagen shares at once.

On the day of its removal, September 21, Volkswagen’s share price fell by over 1%. This was despite a market rebound on the Frankfurt Stock Exchange.

Volkswagen stated, “Index inclusion does not fundamentally alter a company’s competitiveness,” and maintained that the company remains an attractive investment, even amid the most significant transformation in automotive history. Volkswagen also announced its goal to improve financial performance through restructuring and to return to the Euro Stoxx 50 in the medium term.

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