A possible reason for the recent weakness in EBOS and Spark share prices

By Stephen Bennie

If you have a KiwiSaver account, there is a high chance that the MSCI All Country World Index (ACWI) has a bearing on the composition of your global equity exposure. It might be that your KiwiSaver provider takes a passive approach to allocating your savings, in that case there is a high chance that the ACWI determines exactly which global shares you own and in what proportion.

On the other hand, you might be using a fund manager that adopts a more active approach to security selection, in that case they may be taking active positions against the ACWI, in which case the ACWI has a lesser effect on what global equities you own but it may still play a part in how that manager positions their global equity portfolio. This situation is not unique to New Zealanders, savers across the globe have exposure to the ACWI which means that according to MSCI that, at the end of 2023, USD $4.6 trillion was benchmarked to the ACWI, either through passive or active investing. So, sort of a big deal.

That in turn means that being a member of the ACWI has some bearing on the ownership of the shares of a company. Simply put, going into the ACWI is good for a share price, going out is bad for a share price. It’s a supply and demand situation. I won’t dwell on this point as it means that the share market is not fully efficient. The share price of a listed company should solely be determined by the intrinsic value of that business not by it being a member of an index, even a very important index. But let’s move on.