Volkswagen and Nike Face Index Exclusion... Can They Make a Comeback Like Nokia? [Weekend Money]

Passive Fund Outflows Lead to Further Decline in Share Price

Vacant Spots Filled Mainly by AI and Semiconductor Companies

Nokia Returns After Being Ousted Due to Mobile Phone Slump

On the 21st, Volkswagen was removed from the 'Euro Stoxx 50,' an index comprising 50 blue-chip stocks in the Eurozone. This is the first time in 15 years that Europe's largest automobile manufacturer has experienced such an event. On the same day in the United States, Nike, the world's largest sportswear company, was excluded from the S&P 100 for the first time in 18 years.

Volkswagen's stock price has fallen to a quarter of its 2021 peak. This is due to persistent factors such as tariff pressure from the United States, overproduction, and sluggish sales in China. Its market capitalization of 38 billion euros is just one-eighth of its annual revenue of 322 billion euros.

On the 21st, Volkswagen was removed from the 'Euro Stoxx 50,' an index comprising 50 blue-chip stocks in the Eurozone. Photo by EPA Yonhap News Agency

Nike's market capitalization dropped from 264 billion dollars in November 2021 to 57 billion dollars. The trigger was its decision to directly sell through its own app and retail stores, which led to a large-scale reduction of wholesale partners such as department stores and shoe specialty shops. Shelves that previously displayed Nike products were filled by emerging brands such as On and Hoka.

The same day, Honeywell Aerospace, Simon Property Group, and Colgate-Palmolive also exited the S&P 100. New entries included Dell, Palo Alto Networks, Arista Networks, and SanDisk. All four are from the information technology (IT) sector. Arista manufactures switches connecting AI data centers, while SanDisk sells NAND flash memory. SanDisk's stock price has more than tripled, surging over 600% just this year.

Volkswagen logo. Reuters Yonhap News.

In Europe, the exit of car manufacturers from major indices continues. In September last year, Stellantis was dropped, and this year Volkswagen followed suit. The only remaining automobile manufacturers in the Euro Stoxx 50 are Ferrari, BMW, and Mercedes-Benz.

One of the companies filling Volkswagen's vacant spot is Nokia. Having exited the Euro Stoxx 50 along with Stellantis last September, Nokia has made a comeback. Its stock price has more than doubled over the past year, and its second-quarter AI infrastructure sales rose 105% year-on-year. The decisive factor was its acquisition of Infinera last year, which enabled it to directly manufacture optical communication components for AI data centers.

When removed, passive funds also leave... Volkswagen falls alone in a rebound market

Index inclusion or exclusion is not a verdict on a company's future. The Euro Stoxx 50 determines its components based on the market capitalization of shares actively traded on the market.

However, the impact on stock prices can still be significant, mainly due to passive funds that replicate the index exactly. The purpose of a passive fund is to closely track the index. If they hold stocks not included in the index, their performance diverges from the index, so when additions or deletions are decided, they are obliged to dispose of the excluded stocks regardless of price. With more sellers and fewer buyers, prices decline further.

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

On the removal day, the 21st, Volkswagen's share price fell by more than 1%. This occurred even as the Frankfurt Stock Exchange in Germany rebounded.

Volkswagen stated that index inclusion does not fundamentally alter the company's competitiveness and highlighted that, even amid the greatest transformation in automotive history, it remains an attractive investment. The company also announced its aim to improve financial performance through restructuring and return to the Euro Stoxx 50 in the medium term.

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