FTSE Russell, MSCI and Nasdaq 100 inclusions lined up; initial passive inflows alone seen reaching up to $17 billion; S&P 500 entry possible down the road
SpaceX, the largest initial public offering in history, is emerging as a force that could reshape capital flows in US equity markets. With the company set to join major indexes — including FTSE Russell, MSCI and the Nasdaq 100 — shortly after its listing, passive funds such as exchange-traded funds and index funds are expected to pour in at scale.
Market analysts estimate that up to $17 billion could flow into SpaceX within roughly three weeks of its listing. The process could also generate some selling pressure on existing US mega-cap growth stocks such as Nvidia, Microsoft and Apple, analysts said.
SpaceX listed on the Nasdaq on Friday local time. Its IPO price was set at $135 per share, giving the company a valuation of approximately $1.75 trillion — the largest single IPO on record, surpassing Saudi Aramco.
With the largest IPO in history entering the market, passive funds tracking the relevant indexes have no choice but to buy SpaceX mechanically. Passive funds are ETFs and index funds that replicate the composition of a specific index.
An ETF tracking the Nasdaq 100, for example, must hold its constituent stocks in proportion to their index weightings. Once SpaceX is added to the Nasdaq 100, those ETFs will be required to purchase SpaceX shares in line with its assigned weight.
SpaceX is scheduled for inclusion in FTSE Russell, MSCI and the Nasdaq 100 shortly after its listing. KB Securities estimated that passive inflows tied to FTSE Russell and MSCI alone could reach up to $10 billion. Adding the Nasdaq 100 inclusion scheduled for July 6, total passive buying demand over roughly three weeks following the listing could reach up to approximately $17 billion.
"Across the four major indexes, passive inflows from funds that rebalance mechanically around the inclusion date — ETFs, index funds and full-replication passive strategies — are estimated at roughly $7 billion to $10 billion combined for FTSE Russell and MSCI, with initial Nasdaq 100 inclusion demand estimated at around $6.2 billion to $7.1 billion," said Park Yu-an, a researcher at KB Securities.
Starting Monday, single-stock leveraged ETFs based on SpaceX as the underlying asset will begin trading. Index inclusions are then scheduled in sequence — FTSE Russell on Friday, MSCI on June 26 and the Nasdaq 100 on July 6 — meaning different pools of passive capital will flow in gradually over about three weeks.
When passive funds add a new stock, they must trim existing holdings to make room. Because total investment size is fixed, funds must reduce the weight of current positions to free up capital for SpaceX. As SpaceX's index weight grows, allocations to existing mega-caps — Nvidia, Microsoft, Apple, Amazon and Meta — will be diluted accordingly.
A bigger variable lies beyond year-end. SpaceX's expected Nasdaq 100 weighting at inclusion is in the range of 0.44 to 0.50 percent, but if its actual float expands to 15 to 20 percent following lock-up expirations and additional share supply after the IPO, its weighting could rise to between 1.5 and 2.0 percent.
Over the longer term, S&P 500 inclusion remains an open question. SpaceX is currently excluded from S&P 500 eligibility after S&P Dow Jones declined to adopt a relaxed early-inclusion rule for mega IPOs.
If SpaceX eventually meets the profitability and float requirements for S&P 500 inclusion, the picture could change dramatically. KB Securities estimated that under a conditional long-term scenario, additional passive buying demand could reach $65 billion to $100 billion.
"This event is more likely to mark the beginning of a gradual diversification of US growth stock flows — which have been concentrated in the Magnificent Seven over the past two years — toward a major new growth name, rather than the sharp selloff in existing big-tech stocks that the market fears," Park said.
By Hong Tae-hwa
th5@heraldcorp.com
