The MSCI stock index rejig announced on Saturday will hit European bourses when they reopen today, with German luxury carmaker BMW -- widely tipped to be included in the new indices -- left out in the cold.
As expected Germany, Italy and France were among the largest country losers globally in Morgan Stanley Capital International's provisional index series.
"It could be quite negative for the CAC-40," said Dresdner Kleinwort Wasserstein index analyst Andrew Freyre-Sanders, referring to the French blue chip index.
The provisional series reflects the shift to free-float, which pegs a company's weighting in indices on the amount of shareholder base that is freely tradeable. It also reflects deeper sector representation as equity trading increasingly focuses on industry groups.
The move from the current MSCI indices to replicate the provisional series will be done in two stages, November this year, and completed next May.
The UK, along with the US, were the leading country beneficiaries, also widely anticipated.
In Germany carmaker Porsche was included but much-bigger rival BMW was left out, as was Commerzbank.
"BMW on Friday traded twice its daily volume and hit a high for the year. I would see that sort of position being aggressively unwound on Monday," said Nizam Hamid, a Deutsche Bank index analyst.
On Friday, BMW shares closed up 2.7 percent at 41.49 euros after hitting new highs of 42.25 euros.
France's Credit Lyonnais bank was excluded from MSCI indices, analysts noted.
"In the UK, there will be moves on Monday morning, with general relief that Shell went in, and Cable & Wireless as well," said Hamid.
Shell's shares rose on Friday ahead of the MSCI rejig.
Interestingly, the inclusion of UK's Telewest and Daily Mail and General Trust in the MSCI index may help offset the negative impact of those two seeing their weightings being reduced in the rival FTSE All-Share index which goes to free-float on June 18.
"We are fairly happy with the UK changes, but surprised Allied Domecq and Powergen did not get in as they are both reasonable-sized companies," Hamid said.
Dresdner Kleinwort Wasserstein analyst Andrew Freyre-Sanders said the inclusion of Switzerland's luxury goods group Richemont is also a surprise.
Energy stocks kept European markets afloat on Friday, weighing against disappointing US corporate results and a poor reception to a reported Alcatel bid for US peer Lucent.
By the close Wall Street was edging lower, with the tech-heavy NASDAQ off 0.4 percent and the Dow Jones industrial average losing 0.3 percent.
The pan-European FTSE Eurotop 300 index and the eurozone blue-chip DJ Euro Stoxx 50 both added 0.9 percent by that time.
"You've got banks among the top gainers and banks among the biggest losers -- there's no real theme today," said Edinburgh Fund Managers' European portfolio manager Fiona Gillespie. ABN Amro, for example, put on two percent while Deutsche Bank lost 1.2 percent.
Shell put on 2.5 percent amid expectations of a heavier weighting in revamped MSCI indices to be revealed on Saturday. BP and Royal Dutch put on about 1.5 percent apiece.
But Alcatel was the big standout feature.
News from close sources that the French telecoms equipment maker was in advanced talks to buy Lucent for slightly more than US$40 billion sparked strong signals from equity and debt markets alike that this would be a match made in hell.
Dealers said the market was sceptical about the commercial sense of the deal, taking the view that it was expensive for Alcatel and wrongly timed.
"For a company with a credit rating that's not very good anyway to pay a 20 percent premium for a company that spends money like there's no tomorrow is not going to be very rewarding for the market," said Edinburgh Fund Managers' Gillespie.
Alcatel fell 7.2 percent and its bond yields also widened by around 10 basis points on worries that a combination with Lucent could lead to a credit rating downgrade.
In the debt default market, the cost of credit protection on the Alcatel debt rose sharply. The five year default swap for Alcatel widened from a bid/offer of 73/78 basis points on Thursday to 100/110 basis points on Friday, as traders baulked at the reported amount it would cost Alcatel to buy Lucent.
The default swap traded at 100 and 102 basis points on Friday.
Default swaps are insurance-like tools that enable investors to juggle the risk of an issuer defaulting on an underlying loan or bond.
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