Allied Zurich May Face Further Declines Amid Index Removal
Zurich, July 27 -- Allied Zurich Plc, the U.K. parent of Zurich Financial Services AG,
may face further declines amid concern its shares may soon be dropped from the Dow Jones
50 Stoxx Index of Europe companies, analysts said.
Shares in the parent of Europe's fourth-largest insurer have fallen 9 percent since the
beginning of July amid speculation that Allied may be dropped from the benchmark index
when changes to its member companies are announced August 19.
Inclusion in key stock indexes typically lifts shares as they tend to be bought and held
as part of a basket of securities. Conversely, shares dropped from such indexes tend to
fall as portfolio managers replace it with another company. Reuters Group Plc, the world's
largest financial information provider, tumbled 19 percent in the week following its
removal from the DJ Europe 50 last August. The U.K.'s benchmark FT-SE 100 fell 8 percent
in the same period.
``Certainly it would be bad news,'' for Allied Zurich shares, said Georg Marti, an analyst
at Zuercher Kantonalbank. The shares will ``come under pressure in the short term'' if
Allied is removed from the index, he added.
STOXX Limited, the operator of STOXX Indexes, publishes on the first trading day of every
month a list of companies for several indexes including the DJ Europe 50. The list
indicates possible changes to the index at the annual review, according to STOXX Limited,
which was founded by Deutsche Boerse AG, Dow Jones and Company, Paris Bourse SA and Swiss
Members must maintain a ranking in the top 60 companies in terms of market capitalization
in order to remain in the index, and non-members must place in the top 40 in order to be
Allied Zurich placed number 68 on the July 1 list.
Changes to the index are calculated according to the market capitalization at the end of
July, along with the daily average turnover in euro from the preceding twelve months. The
changes will come into effect on September 20.
Analysts said that the company doesn't yet know if its shares will be removed. Thomas
Sutter, a Zurich Allied spokesman, said that the company is in contact with STOXX Limited
In the long-term however, Marti said that there's no reason why the stock should continue
to decline, even if it is dropped from the index.
``It's a good company, a good story, and has a good earnings perspective,'' Marti said.
Allied shares rose 7 pence, or 1 percent, to 729p ($11.59) on the London Exchange as
European financial company shares rose amid optimism about interest rates in Europe.