Join the CAC 40, the Holy of Holies. Several groups dream of it, but how, and why a listed group enters, or leaves, the CAC 40? What are the advantages of these companies to integrate the most famous index of the Paris stock exchange? What is the interest for traders to be interested in the movements of CAC 40 companies?
What is the CAC 40?
The CAC 40 is the main stock market index in France. It contains 40 stocks among the top 100 French capitalizations. All sectors of activity are represented there, and the list is regularly updated to respect this balance. Created in 1988, it is the main indicator of the health and economic performance of the country.
In order to favor companies with lower capital, the CAC 40 has been using the floating market capitalization system since 2003. Since then, the volume of securities available for purchase for a given company has been taken into account in the calculation of the index, giving it a chance against large state-owned companies.
Factors that affect the CAC 40
Keeping up to date with the CAC 40 value is a good idea for anyone about to invest in a listed company. Among the elements to be taken into account to monitor the evolution of the index, we find three main factors that affect the CAC 40. In ascending order of importance, there are:
- Political events: elections or bills for example can influence the value of the CAC 40. Indeed, presidential campaigns and announcements of reforms sometimes upset the health of certain companies, to their advantage, as to their disadvantage;
- Unforeseen national and international crises: the most recent example is that of the coronavirus. Following the national confinement of 2020, the values of the CAC 40 have decreased by 39%;
- Economic movements: during the technological and automation boom of 1999-2000, the CAC 40 experienced its largest increase, with + 42.67% in one year.
How can a group join the CAC 40?
The Scientific Council of Indices (CSI) meets four times a year to decide on the companies entering and exiting the CAC 40, with regard to certain criteria. This council is independent, and has the right to exercise its free will. Its decisions must also be made in accordance with the representativeness of each sector.
In order for a company to be selected to join the CAC 40, the CSI retains two criteria:
- The amount of capital exchanged over the past year;
- Free-float capital, that is, the portion of that company’s securities that can be traded on the market.
If the volume and price of a company’s shares increase, the board can then, in an absolute majority vote, decide on the entry of a company into the CAC 40.
If, on the contrary, these two criteria decrease, the company in question may be reclassified to the lower index, the CAC Next 20, which groups together the most representative stocks in terms of market capitalization, just behind the CAC 40. When ‘a company is exiting the CAC 40, it is replaced by a more efficient company, often resulting from the CAC Next 20. This is not always the case: some French start-ups want to join the CAC 40 without necessarily going through the CAC Next 20 box.
What should be remembered here is that entry into the CAC 40 is therefore not final, and is based on strict and precise criteria.