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Shell merger poses new risk

Financial Times: Shell merger poses new risk

Tuesday 28 June 2005

By Paul Betts

Royal Dutch/Shell is expected to approve on Tuesday a corporate revolution by merging its two separately quoted arms into a single company headquartered in the Netherlands with its primary listing in London.

This is likely to double the Anglo-Dutch major’s weighting in the FTSE 100 index. In so doing, it will concentrate further the index of the UK’s leading 100 companies around a handful of big caps, reflecting a growing European trend contrasting with Wall Street and Tokyo.

Nestlé is another example. The Swiss multinational is dismantling its global share network, leaving it with a listing only in Zurich and New York.

The weightings of the 10 largest companies in the CAC-40 now account for 60 per cent of the French blue-chip index, with oil group Total alone accounting for as much as 15 per cent.

In Germany too, the 10 largest companies make up 60 per cent of the HDAX 110’s total weighting.

As for the FTSE 100, the top 10 weigh 51 per cent and this before the expected doubling of Shell’s weighting, which will see the oil group join BP and HSBC in the top three.

In the US, big caps account for 39 per cent of the S&P100, while in Japan only 34 per cent.

The US Fidelity group warns concentration in Europe raises new risks for investors tracking indices as a safer way of playing the markets. With performance hinging increasingly on a small number of big caps, investors might as well opt for purportedly riskier stock picking.

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