Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<p>Earlier today, S&amp;P Dow Jones announced that all the proposals of the latest market consultation would be implemented at the close of trading on 16 April to reduce constituent concentration, ease liquidity limitations, and improve index replication further than would have been achieved from the result of the prior market consultation.</p><p>We expect there will be 37 additions to the index taking the number of index constituents up to 67. This number will increase over the next few rebalances as the target is to get up to at least 100 constituent stocks.</p><p>With index weight dependent on free float market cap and turnover, plus capping of index weight dependent on exposure scores, this is going to be a large rebalance. We expect a one-way turnover of 48.1% with our expected changes.</p><p>Stocks that could see passive buying (sorted in terms of days of ADV) are <a href="https://www.smartkarma.com/entities/drax-group-plc" target="_blank" data-smartkarma-citation="entities:21911:1" rel="noopener">Drax Group PLC (DRX LN)</a>, <a href="https://www.smartkarma.com/entities/enel-americas-sa-c3a67f8a-ad13-45ff-a676-cbc513b8c458" target="_blank" data-smartkarma-citation="entities:25965:1" rel="noopener">Enel Americas Sa (ENIA US)</a>, <a href="https://www.smartkarma.com/entities/fortum-oyj" target="_blank" data-smartkarma-citation="entities:21762:1" rel="noopener">Fortum OYJ (FUM1V FH)</a>, <a href="https://www.smartkarma.com/entities/erg-spa" target="_blank" data-smartkarma-citation="entities:21186:1" rel="noopener">ERG SpA (ERG IM)</a>, <a href="https://www.smartkarma.com/entities/terna-rete-elettrica-nazionale" target="_blank" data-smartkarma-citation="entities:21232:1" rel="noopener">Terna Rete Elettrica Nazionale (TRN IM)</a>, <a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power Group Corp (916 HK)</a>, <a href="https://www.smartkarma.com/entities/nordex-se" target="_blank" data-smartkarma-citation="entities:21682:1" rel="noopener">Nordex SE (NDX1 GR)</a>, <a href="https://www.smartkarma.com/entities/acciona-sa" target="_blank" data-smartkarma-citation="entities:21248:1" rel="noopener">Acciona SA (ANA SM)</a>, <a href="https://www.smartkarma.com/entities/avista-corp" target="_blank" data-smartkarma-citation="entities:17178:1" rel="noopener">Avista Corp (AVA US)</a> and <a href="https://www.smartkarma.com/entities/idacorp-inc" target="_blank" data-smartkarma-citation="entities:15190:1" rel="noopener">Idacorp Inc (IDA US)</a>.</p><p>Stocks that could see passive selling (sorted in terms of days of ADV) are <a href="https://www.smartkarma.com/entities/meridian-ener-partly-paid-sh" target="_blank" data-smartkarma-citation="entities:4327:1" rel="noopener">Meridian Energy (MEL NZ)</a>, <a href="https://www.smartkarma.com/entities/contact-energy-ltd" target="_blank" data-smartkarma-citation="entities:13136:1" rel="noopener">Contact Energy (CEN NZ)</a>, <a href="https://www.smartkarma.com/entities/verbund-ag" target="_blank" data-smartkarma-citation="entities:22563:1" rel="noopener">Verbund AG (VER AV)</a>, <a href="https://www.smartkarma.com/entities/edp-renovaveis-sa" target="_blank" data-smartkarma-citation="entities:21363:1" rel="noopener">EDP Renovaveis SA (EDPR PL)</a>, <a href="https://www.smartkarma.com/entities/scatec-solar-asa" target="_blank" data-smartkarma-citation="entities:25120:1" rel="noopener">Scatec Solar ASA (SSO NO)</a>, <a href="https://www.smartkarma.com/entities/innergex-renewable-energy-inc" target="_blank" data-smartkarma-citation="entities:25479:1" rel="noopener">Innergex Renewable Energy (INE CN)</a>, <a href="https://www.smartkarma.com/entities/boralex-inc" target="_blank" data-smartkarma-citation="entities:25478:1" rel="noopener">Boralex Inc (BLX CN)</a> and <a href="https://www.smartkarma.com/entities/siemens-gamesa-renewable-energy-s-a" target="_blank" data-smartkarma-citation="entities:21270:1" rel="noopener">Siemens Gamesa Renewable Energy, S.A. (SGRE SM)</a>.</p><p>Among existing constituents, there will be passive inflows on <a href="https://www.smartkarma.com/entities/orsted-a-s" target="_blank" data-smartkarma-citation="entities:24765:1" rel="noopener">Orsted A/S (ORSTED DC)</a>, <a href="https://www.smartkarma.com/entities/vestas-wind-systems-a-s" target="_blank" data-smartkarma-citation="entities:22524:1" rel="noopener">Vestas Wind Systems A/S (VWS DC)</a>, <a href="https://www.smartkarma.com/entities/solaredge-technologies-inc" target="_blank" data-smartkarma-citation="entities:27981:1" rel="noopener">SolarEdge Technologies Inc (SEDG US)</a>, <a href="https://www.smartkarma.com/entities/sunrun-inc" target="_blank" data-smartkarma-citation="entities:19726:1" rel="noopener">Sunrun Inc (RUN US)</a> and <a href="https://www.smartkarma.com/entities/enphase-energy-inc" target="_blank" data-smartkarma-citation="entities:8872:1" rel="noopener">Enphase Energy (ENPH US)</a>. </p>

Earlier today, S&amp;P Dow Jones announced that all the proposals of the latest market consultation would be implemented at the close of trading on 16 April to reduce constituent concentration, ease liquidity limitations, and improve index replication further than would have been achieved from the result of the prior market consultation.We expect there will be 37 additions to the index taking the number of index constituents up to 67. This number will increase over the next few rebalances as the target is to get up to at least 100 constituent stocks.With index weight dependent on free float market cap and turnover, plus capping of index weight dependent on exposure scores, this is going to be a large rebalance. We expect a one-way turnover of 48.1% with our expected changes.Stocks that could see passive buying (sorted in terms of days of ADV) are Drax Group PLC (DRX LN), Enel Americas Sa (ENIA US), Fortum OYJ (FUM1V FH), ERG SpA (ERG IM), Terna Rete Elettrica Nazionale (TRN IM), China Longyuan Power Group Corp (916 HK), Nordex SE (NDX1 GR), Acciona SA (ANA SM), Avista Corp (AVA US) and Idacorp Inc (IDA US).Stocks that could see passive selling (sorted in terms of days of ADV) are Meridian Energy (MEL NZ), Contact Energy (CEN NZ), Verbund AG (VER AV), EDP Renovaveis SA (EDPR PL), Scatec Solar ASA (SSO NO), Innergex Renewable Energy (INE CN), Boralex Inc (BLX CN) and Siemens Gamesa Renewable Energy, S.A. (SGRE SM).Among existing constituents, there will be passive inflows on Orsted A/S (ORSTED DC), Vestas Wind Systems A/S (VWS DC), SolarEdge Technologies Inc (SEDG US), Sunrun Inc (RUN US) and Enphase Energy (ENPH US). 

Global Clean Energy Index: All Proposals to Be Implemented; 48% One-Way Turnover

<p>The S&amp;P Global Clean Energy Index is designed to measure the performance of 30 companies from around the world that are involved in clean energy-related businesses, comprising a diversified mix of clean energy production and clean energy equipment and technology companies.</p><p>There are two ETFs that are benchmarked to the index and these ETFs have seen massive inflows over the last year. This has caused liquidity issues in the underlying stocks and has led to S&amp;P having multiple market consultations to reduce constituent concentration, easy liquidity limitations and improve index replication.</p><p>The changes due to these market consultations will cause large passive flows on the stocks. A few stocks have moved substantially over the last couple of months but there could be more in store for a few of them.</p><p>Depending on the which proposals are implemented, one-way turnover for the review could be in the range of 30-50% and there are a lot of stocks that will have more than 10 days of ADV to trade.</p><p>In this Insight we look at the index, the inflows on the ETFs, the various market consultations and the impact on the stocks that constitute the index and those that could be added to the index in the April rebalance.</p>

The S&amp;P Global Clean Energy Index is designed to measure the performance of 30 companies from around the world that are involved in clean energy-related businesses, comprising a diversified mix of clean energy production and clean energy equipment and technology companies.There are two ETFs that are benchmarked to the index and these ETFs have seen massive inflows over the last year. This has caused liquidity issues in the underlying stocks and has led to S&amp;P having multiple market consultations to reduce constituent concentration, easy liquidity limitations and improve index replication.The changes due to these market consultations will cause large passive flows on the stocks. A few stocks have moved substantially over the last couple of months but there could be more in store for a few of them.Depending on the which proposals are implemented, one-way turnover for the review could be in the range of 30-50% and there are a lot of stocks that will have more than 10 days of ADV to trade.In this Insight we look at the index, the inflows on the ETFs, the various market consultations and the impact on the stocks that constitute the index and those that could be added to the index in the April rebalance.

Global Clean Energy Index: MASSIVE Changes Coming Up; 30-50% One-Way Turnover

New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<h2>Electricity Sector<br>S&amp;P Clean Energy Index Consultation&nbsp;Threepeat</h2>
<p></p>
<div id="m_-8766639270074383272iubdj">
<p>The upshot of S&amp;P's third go at changing its Global Clean Energy (GCE) Index rules, (despite seemingly finalising new rules mid-February), is a probable further reduction of the GCE Index weights of Contact Energy (CEN) and Meridian Energy (MEL).&nbsp; We estimate that under the proposed changes the&nbsp;ETFs&nbsp;that track the index will be required to sell between 72m–78m shares in CEN (~9% of free float) and between 100m–109m shares in MEL (~8% of free float). The exact amount will depend on the size and liquidity of new GCE Index constituents. The consultation doesn't mention a change to the US$3m six month MDVT (median daily traded value) entry threshold, meaning we expect Mercury (MCY) will still miss out on inclusion.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/192/712/original/image_81785932831615163313245.png?1615163315" class="editor-image img-responsive" data-smartkarma-image-id="192712"></figure>
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<h3>New proposals will increase the number of GCE Index constituents, diluting CEN and MEL further</h3>
</div>
<div id="m_-8766639270074383272ikqui">
<p>The key proposed change impacting CEN and MEL is the increased target constituent count of 100, which will dilute MEL and CEN's weightings. To enable more constituents, S&amp;P is proposing to lower the "clean energy" requirement, allowing companies with a "significant clean energy exposure" to enter the GCE Index. Currently there are 30 GCE constituents. If S&amp;P applied the proposed rules at the October 2020 rebalance there would be 68 constituents, meaning as more companies meet the criteria the constituent count will increase towards 100 over time. A comparison of the current rules, the Feb-21 rule changes and the latest proposal are detailed in Figure 2.</p>
</div>
<div>
<h3>Proposed rules increase the black box element of the GCE Index</h3>
</div>
<div id="m_-8766639270074383272iix2v">
<p>It is harder to estimate the potential impact on CEN and MEL from the&nbsp;proposed rule changes, although there will extra ETF selling. It is unclear how S&amp;P assesses the "clean energy" aspect of constituents. With a lower clean energy threshold required to enter the GCE Index, it is possible some very large companies will now enter. Large, liquid companies entering the GCE Index will dilute CEN and&nbsp;MEL the most. The current largest constituent has a free float market cap of US$35b, whilst the median is US$3.5b of the 30 constituents&nbsp;(CEN is US$3.7b and MEL US$4.8b). In addition, liquidity plays a bigger role than it used to and with MEL (US$8.9m) and CEN (US$7.9m) MDVT liquidity well below the median of current constituents (US$36m), their respective GCE Index weightings are going to be much lower than in the past.</p>
</div>
<div>
<h3>CEN offers great value, MEL still looks expensive</h3>
</div>
<div id="m_-8766639270074383272imk04">
<p>Whilst there is short-term downside risk to CEN, we see good value at current levels. It is trading on an FY21 gross dividend yield of 6.9% (which we expect to grow in coming years) and an FY22 EV/EBITDAF 11.9x. In comparison MEL's gross dividend yield is 4.2% and FY22 EV/EBITDAF 20.6x. Our CEN rating is OUTPERFORM and our MEL rating is UNDERPERFORM.</p>
</div>
<div>
<div>
<div><strong>Andrew Harvey-Green</strong></div>
<div><a href="mailto:andrew.harvey-green@forsythbarr.co.nz" target="_blank" rel="noopener">andrew.harvey-green@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 8185</div>
<div></div>
</div>
</div>
<div>
<div>
<div><strong>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
</div>
</div>

Electricity Sector S&amp;P Clean Energy Index Consultation&nbsp;Threepeat


The upshot of S&amp;P's third go at changing its Global Clean Energy (GCE) Index rules, (despite seemingly finalising new rules mid-February), is a probable further reduction of the GCE Index weights of Contact Energy (CEN) and Meridian Energy (MEL).&nbsp; We estimate that under the proposed changes the&nbsp;ETFs&nbsp;that track the index will be required to sell between 72m–78m shares in CEN (~9% of free float) and between 100m–109m shares in MEL (~8% of free float). The exact amount will depend on the size and liquidity of new GCE Index constituents. The consultation doesn't mention a change to the US$3m six month MDVT (median daily traded value) entry threshold, meaning we expect Mercury (MCY) will still miss out on inclusion.



New proposals will increase the number of GCE Index constituents, diluting CEN and MEL further


The key proposed change impacting CEN and MEL is the increased target constituent count of 100, which will dilute MEL and CEN's weightings. To enable more constituents, S&amp;P is proposing to lower the "clean energy" requirement, allowing companies with a "significant clean energy exposure" to enter the GCE Index. Currently there are 30 GCE constituents. If S&amp;P applied the proposed rules at the October 2020 rebalance there would be 68 constituents, meaning as more companies meet the criteria the constituent count will increase towards 100 over time. A comparison of the current rules, the Feb-21 rule changes and the latest proposal are detailed in Figure 2.


Proposed rules increase the black box element of the GCE Index


It is harder to estimate the potential impact on CEN and MEL from the&nbsp;proposed rule changes, although there will extra ETF selling. It is unclear how S&amp;P assesses the "clean energy" aspect of constituents. With a lower clean energy threshold required to enter the GCE Index, it is possible some very large companies will now enter. Large, liquid companies entering the GCE Index will dilute CEN and&nbsp;MEL the most. The current largest constituent has a free float market cap of US$35b, whilst the median is US$3.5b of the 30 constituents&nbsp;(CEN is US$3.7b and MEL US$4.8b). In addition, liquidity plays a bigger role than it used to and with MEL (US$8.9m) and CEN (US$7.9m) MDVT liquidity well below the median of current constituents (US$36m), their respective GCE Index weightings are going to be much lower than in the past.


CEN offers great value, MEL still looks expensive


Whilst there is short-term downside risk to CEN, we see good value at current levels. It is trading on an FY21 gross dividend yield of 6.9% (which we expect to grow in coming years) and an FY22 EV/EBITDAF 11.9x. In comparison MEL's gross dividend yield is 4.2% and FY22 EV/EBITDAF 20.6x. Our CEN rating is OUTPERFORM and our MEL rating is UNDERPERFORM.



Andrew Harvey-Green
andrew.harvey-green@forsythbarr.co.nz
+64 4 495 8185





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Electricity Sector: S&P Clean Energy Index Consultation Threepeat

<h2>Power Points<br>Drying Out — March 2021</h2>
<p>&nbsp;</p>
<p>Wholesale electricity market conditions are tight, with gas availability issues and well below average hydro storage lakes pushing the February 2021 average wholesale electricity price at Otahuhu to NZ$238/MWh, the third highest on record. As a result the earnings outlook for FY21 is more uncertain than usual, although Genesis Energy (GNE) is in the best position, with all of the other three large generator/retailers facing downside earnings risk if hydro conditions stay dry. The key take-out from the recent 1H21 results season is that we are moving from a "returning cash to shareholders" phase to a "building" phase requiring more capital. Contact Energy (CEN) and Meridian Energy (MEL) both announced new builds (as expected), had lower dividends and indicated the possibility of commencing a dividend reinvestment plan at the FY21 result.&nbsp;</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/192/183/original/blobid1.png?1614820310" class="editor-image img-responsive" data-smartkarma-image-id="192183"></figure>
<h3>February a sign of things to come</h3>
<p>February saw a sharp rise in wholesale electricity prices as a result of ongoing gas shortages and hydro storage volumes&nbsp;declining. Hydro storage levels of ~70% of average are roughly the same as in 2008 and 2012,&nbsp;the last significant dry years. With the market under stress, the wholesale electricity price at&nbsp;Otahuhu&nbsp;averaged&nbsp;NZ$238/MWh, close to&nbsp;levels last seen in the price spike of October 2018. Average daily electricity demand was -2.0% lower than the&nbsp;pcp. Of the large generator/retailers, GNE appears to be in the best position to&nbsp;benefit with it gradually making a third&nbsp;Rankine&nbsp;unit available. February&nbsp;Rankine&nbsp;generation was the highest monthly total since May 2013. Soft hydro generation for CEN and MEL point to a weak February performance.</p>
<h3>Solid 1H21 reporting season wrap</h3>
<p>The large generator/retailers reported a strong set of 1H21 results, with total sector EBITDAF up +6% on 1H20. The only laggard on the prior year was MEL which was cycling a record 1H20, whilst Mercury (MCY), GNE and CEN&nbsp;benefitted&nbsp;from rising retail prices. Despite the strong earnings, sector dividends were down on both the prior year, with MEL having ceased its "special" dividend and CEN resetting its dividend -10% lower. These dividend resets coincided with MEL and CEN&nbsp;confirming new generation builds and CEN raising NZ$400m of equity.</p>
<h3>Sector yields still look skinny despite share price falls</h3>
<p>Whilst the average sector gross dividend yield rose +70 basis points to 5.4%, due to share prices falling -11% on average, the yield increase matched the rise in&nbsp;long-term interest rates. As a result the spread between the 10-year swap rate and the average sector yield is unchanged at 3.5% and still well below the long-term average of ~5.0%. Therefore, if interest rates stabilise at current levels, we expect further short-term weakness in the electricity stocks.</p>
<p><strong>Andrew Harvey-Green</strong><br><a href="mailto:andrew.harvey-green@forsythbarr.co.nz" target="_blank" rel="noopener">andrew.harvey-green@<wbr>forsythbarr.co.nz</a> <br>+64 4 495 8185&nbsp;</p>
<p><strong>Scott Anderson</strong><br><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a> <br>+64 4 914 2219</p>

Power Points Drying Out — March 2021
&nbsp;
Wholesale electricity market conditions are tight, with gas availability issues and well below average hydro storage lakes pushing the February 2021 average wholesale electricity price at Otahuhu to NZ$238/MWh, the third highest on record. As a result the earnings outlook for FY21 is more uncertain than usual, although Genesis Energy (GNE) is in the best position, with all of the other three large generator/retailers facing downside earnings risk if hydro conditions stay dry. The key take-out from the recent 1H21 results season is that we are moving from a "returning cash to shareholders" phase to a "building" phase requiring more capital. Contact Energy (CEN) and Meridian Energy (MEL) both announced new builds (as expected), had lower dividends and indicated the possibility of commencing a dividend reinvestment plan at the FY21 result.&nbsp;

February a sign of things to come
February saw a sharp rise in wholesale electricity prices as a result of ongoing gas shortages and hydro storage volumes&nbsp;declining. Hydro storage levels of ~70% of average are roughly the same as in 2008 and 2012,&nbsp;the last significant dry years. With the market under stress, the wholesale electricity price at&nbsp;Otahuhu&nbsp;averaged&nbsp;NZ$238/MWh, close to&nbsp;levels last seen in the price spike of October 2018. Average daily electricity demand was -2.0% lower than the&nbsp;pcp. Of the large generator/retailers, GNE appears to be in the best position to&nbsp;benefit with it gradually making a third&nbsp;Rankine&nbsp;unit available. February&nbsp;Rankine&nbsp;generation was the highest monthly total since May 2013. Soft hydro generation for CEN and MEL point to a weak February performance.
Solid 1H21 reporting season wrap
The large generator/retailers reported a strong set of 1H21 results, with total sector EBITDAF up +6% on 1H20. The only laggard on the prior year was MEL which was cycling a record 1H20, whilst Mercury (MCY), GNE and CEN&nbsp;benefitted&nbsp;from rising retail prices. Despite the strong earnings, sector dividends were down on both the prior year, with MEL having ceased its "special" dividend and CEN resetting its dividend -10% lower. These dividend resets coincided with MEL and CEN&nbsp;confirming new generation builds and CEN raising NZ$400m of equity.
Sector yields still look skinny despite share price falls
Whilst the average sector gross dividend yield rose +70 basis points to 5.4%, due to share prices falling -11% on average, the yield increase matched the rise in&nbsp;long-term interest rates. As a result the spread between the 10-year swap rate and the average sector yield is unchanged at 3.5% and still well below the long-term average of ~5.0%. Therefore, if interest rates stabilise at current levels, we expect further short-term weakness in the electricity stocks.
Andrew Harvey-Green andrew.harvey-green@forsythbarr.co.nz  +64 4 495 8185&nbsp;
Scott Anderson scott.anderson@forsythbarr.co.nz  +64 4 914 2219

<h2>Electricity Sector<br>Index Weighting Changes Confirmed</h2>
<p></p>
<div id="m_-1068413860484814212iubdj-2">
<p>S&amp;P has confirmed its changes to the Global Clean Energy Index (GCEI) that will result in significant selling in Contact Energy (CEN) and Meridian Energy (MEL). After the close of Friday, 16 April, we expect the two exchange traded funds (ETF) that track the GCEI will be forced to sell ~-55m (~7.7% of free float) CEN shares and ~-79m (~6.3%) MEL shares. Whilst the market has already started to prepare for this significant adjustment, the short-term share price risk for CEN and MEL remains&nbsp;to the downside. We do not expect Mercury (MCY) to enter the GCEI&nbsp;— whilst it meets the "clean energy" requirements, it is not liquid enough, and the liquidity measure to enter the GCEI has just got tougher.</p>
</div>
<div>
<h3>GCEI calculation changes will see significant&nbsp;downweightings&nbsp;for CEN and MEL</h3>
</div>
<div id="m_-1068413860484814212ikqui">
<p>The revised GCEI rules will see significant&nbsp;downweights&nbsp;for CEN and MEL. The key issue is the inclusion of a liquidity measure, capping CEN and MEL at levels&nbsp;much lower than their current weightings (as tracked by the&nbsp;iShares&nbsp;ETF holdings). The exact weights that CEN and MEL will be adjusted to is subject to several factors between now and the reference date (Friday, 19 March 2021), including:</p>
<ul>
<li>Number and size of new constituents&nbsp;— this will reduce CEN and&nbsp;MEL's&nbsp;estimated GCEI weighting further, but we do not expect materially so</li>
<li>Relative share price movements</li>
<li>Relative liquidity changes</li>
<li>ETF inflows/outflows over the coming month</li>
</ul>
<p>We detail the key changes to how S&amp;P will calculate the GCEI going forward in Figure 3. Further analysis of the GCEI and the ETFs that track the GCEI can be found in our note, ETFs Trumped Fundamentals, Temporarily, published 12 February 2021.</p>
</div>
<div>
<div>
<div><strong>Andrew Harvey-Green</strong></div>
<div><a href="mailto:andrew.harvey-green@forsythbarr.co.nz" target="_blank" rel="noopener">andrew.harvey-green@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 8185</div>
<div></div>
</div>
</div>
<div>
<div>
<div><strong>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
</div>
</div>

Electricity Sector Index Weighting Changes Confirmed


S&amp;P has confirmed its changes to the Global Clean Energy Index (GCEI) that will result in significant selling in Contact Energy (CEN) and Meridian Energy (MEL). After the close of Friday, 16 April, we expect the two exchange traded funds (ETF) that track the GCEI will be forced to sell ~-55m (~7.7% of free float) CEN shares and ~-79m (~6.3%) MEL shares. Whilst the market has already started to prepare for this significant adjustment, the short-term share price risk for CEN and MEL remains&nbsp;to the downside. We do not expect Mercury (MCY) to enter the GCEI&nbsp;— whilst it meets the "clean energy" requirements, it is not liquid enough, and the liquidity measure to enter the GCEI has just got tougher.


GCEI calculation changes will see significant&nbsp;downweightings&nbsp;for CEN and MEL


The revised GCEI rules will see significant&nbsp;downweights&nbsp;for CEN and MEL. The key issue is the inclusion of a liquidity measure, capping CEN and MEL at levels&nbsp;much lower than their current weightings (as tracked by the&nbsp;iShares&nbsp;ETF holdings). The exact weights that CEN and MEL will be adjusted to is subject to several factors between now and the reference date (Friday, 19 March 2021), including:

Number and size of new constituents&nbsp;— this will reduce CEN and&nbsp;MEL's&nbsp;estimated GCEI weighting further, but we do not expect materially so
Relative share price movements
Relative liquidity changes
ETF inflows/outflows over the coming month

We detail the key changes to how S&amp;P will calculate the GCEI going forward in Figure 3. Further analysis of the GCEI and the ETFs that track the GCEI can be found in our note, ETFs Trumped Fundamentals, Temporarily, published 12 February 2021.



Andrew Harvey-Green
andrew.harvey-green@forsythbarr.co.nz
+64 4 495 8185





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Electricity Sector: Index Weighting Changes Confirmed

New Zealand

Contact Energy Limited is a diversified and integrated energy company which focuses on the generation of electricity and the sale of electricity and gas in New Zealand.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Contact Energy (CEN NZ)

Global Clean Energy Index: All Proposals to Be Implemented; 48% One-Way Turnover

S&P will implement all proposals of the market consultation at the close on 16 April. This will create trading opportunities. One-way turnover is...

Brian Freitas

Global Clean Energy Index: MASSIVE Changes Coming Up; 30-50% One-Way Turnover

The huge inflows into ETFs tracking the S&P Global Clean Energy Index have led to many market consultations and there will be massive flows in/out...

Brian Freitas

Electricity Sector: S&P Clean Energy Index Consultation Threepeat

Electricity SectorS&P Clean Energy Index Consultation Threepeat The upshot of S&P's third go at changing its Global Clean Energy (GCE)...

Forsyth Barr

Power Points: Drying Out — March 2021

Power PointsDrying Out — March 2021 Wholesale electricity market conditions are tight, with gas availability issues and well below average hydro...

Forsyth Barr

Electricity Sector: Index Weighting Changes Confirmed

Electricity SectorIndex Weighting Changes Confirmed S&P has confirmed its changes to the Global Clean Energy Index (GCEI) that will result in...

Forsyth Barr

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