EUROPE – J P Morgan says the STOXX index needs to enlarge to 90 stocks to compete with the new FTSEurofirst index before it gets going.
“We believe that the solution for STOXX may be to rebalance to 81 (OK, 90, to give a round number) and pip FTSE to the post before it even gets off the ground,” says the US-based bank.
The comments come in a 19-page report on the pan-European index battle between the established DJ STOXX 50 index and newcomers FTSEurofirst 80 and 100.
“We are sure that there is an appetite to enlarge the existing contract,” say Andrew Freyre-Sanders and Pablo de Mattos of J P Morgan’s Structured Portfolio Trading Research.
And they say that FTSEurofirst will struggle to overcome the inertia involved in ousting an incumbent. “If people are prepared to switch to an enlarged product, then they are prepared for the existing product to change.”
Index group FTSE teamed up with exchange operator Euronext in late April to launch the new indices, with STOXX their explicit target. Futures on the new indices began trading on June 23.
“We have very little doubt that this contract provides a better tool for risk management,” the J P Morgan analysts say. “However, we believe the driver will not necessarily be the strength of the product itself (as shown by other previous launches), but more of a technical issue.”
The report also cites the political dimension, saying that the FTSE-Euronext offering will be perceived as being Anglo-French while STOXX will be seen as representing the Swiss-German camp. STOXX is a three-way joint venture between Dow Jones, Deutsche Boerse and SWX, the Swiss exchange operator.
The report says this is the third time that FTSE has tried to create a pan-European index series.
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