EURO STOXX 50 adjustment expected in September 2013

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1 Index Research EURO STOXX 50 adjustment expected in September 2013 Deutsche Post will soon have a Euro STOXX 50 address With regard to the upcoming annual EURO STOXX 50 index adjustment in September 2013, there seems to be a need for action again following the extraordinary adjustment in March Deutsche Post looks set to replace steelmaker ArcelorMittal. Given the small differences in free-float market capitalisation around the threshold rankings 40 and 60, there may be further shifts in August. The adjustment is expected to be announced on 2 September 2013 and should be implemented on 20 September 2013 (at closing prices). Potential EURO STOXX 50 removal candidates ArcelorMittal (notional ranking of 63) has been the weakest index stock since March The stock currently has an index weight of c. 0.55% and has recently repeatedly been at an automatic removal ranking on the EURO STOXX 50 selection list. Given the small distance to rank 60, ArcelorMittal has a chance of working its way out of the automatic removal ranks through outperformance. However, as the smallest EURO STOXX 50 stock, ArcelorMittal would still be removed as there is an automatic admission candidate. The second-weakest index stock at present, RWE (notional rank of 60) also risks being removed from the index through underperformance ahead of the adjustment. On the other hand, CRH (notional rank of 52) is only in the wider circle of removal candidates and is likely to remain in the index in September EURO STOXX 50 admission candidates On a notional EURO STOXX 50 selection list Deutsche Post (rank 38) currently has an automatic admission ranking (rank 40 or better), requiring a free-float market capitalisation of c bn. Adidas (rank 43) belongs to the wider circle of admission candidates and requires an outperformance of about 7.5% at present to move up into automatic admission ranking. That said, there is a chance that Adidas will move up as the best non-index stock in the case of two automatic removal candidates. Based on the current data, Deutsche Post should have an expected index weight of c. 1.20% (rank 38). In the case of EURO STOXX 50 admission, Adidas would have an index weight of c. 1.07% (rank 43). 8 August 2013 Next Events: 2 September 2013: Decision and communication about an index adjustment expected Content Information on the STOXX selection process... 2 STOXX indices... 2 STOXX selection process... 3 Starting position of admission and removal candidates... 4 Deutsche Post AG: Currently an automatic admission candidate... 5 ArcelorMittal: Currently the weakest EURO STOXX 50 stock... 6 Flow-of-funds analysis... 7 Funds currently tied to the EURO STOXX Expected flow-of-funds of the possible index changes... 7 EURO STOXX 50 structural analysis... 8 Germany remains behind France at rank two... 8 Industrial Goods & Services set to be the second largest sector in the EURO STOXX 50 for now... 8 Summary... 8 Appendix... 9 Past changes to the Euro STOXX EURO STOXX 50 index Companies and codes Expected changes in countries and sectors within the EURO STOXX 50 Germany s share in the EURO STOXX 50 is set to increase to c. 32.6% through the admission of Deutsche Post. If Adidas is also admitted and RWE is removed, this share should increase to c. 32.9%. The removal of ArcelorMittal should reduce the representativeness of the index as both Luxembourg and the STOXX Basic Resources sector would no longer be represented in the index. Expected EURO STOXX 50 changes in September 2013 Arcelor Mittal Euro-Stoxx-50 RWE Deutsche Post Euro-Stoxx Adidas Source: Commerzbank Corporates & Markets For important disclosure information please see pages 13 and 14.

2 Information on the STOXX selection process STOXX indices STOXX TMI is the selection universe for the two STOXX blue chip indices The STOXX TMI represents the selection universe for the two STOXX blue chip indices. The STOXX Europe 600 and the EURO STOXX each form a subset, with the EURO STOXX containing all stocks of the STOXX Europe 600 that belong to the euro zone. Consequently, the number of stocks covered by the EURO STOXX is variable. The two blue chip indices, STOXX Europe 50 and EURO STOXX 50 (see Chart 1), each contain the 50 largest stocks from the two broad indices mentioned above. The intersection set contains those stocks which are represented in both of the blue chip indices. Note: In view of the selection process, it is theoretically possible for a stock from the EURO STOXX to move up to the STOXX Europe 50 but not be contained in the EURO STOXX 50. CHART 1: Overview of the most important STOXX indices Dow STOXX TMI STOXX Europe 600 EURO STOXX 50 STOXX Europe 50 EURO STOXX Source: Commerzbank Corporates & Markets 2 8 August 2013

3 STOXX selection process Step 1: Selection lists based on sector weightings Step 2: 40/60 rule Selection lists are drawn up in order to determine the changes to the EURO STOXX 50. The selection list produced for the EURO STOXX 50 includes stocks which, in the 19 STOXX TMI sectors selected in descending order on the basis of free-float market capitalisation cover as near as possible to 60% of the sector free-float market capitalisation. All stocks already contained in the EURO STOXX 50 are likewise included in the selection list (automatic qualification rule). The selection list is then sorted in descending order on the basis of free-float market capitalisation. A stock is automatically included in the EURO STOXX 50 if it ranks 40 or higher on the selection list. It replaces the smallest index stock based on free-float market capitalisation. A stock is automatically taken out of the index if it is no longer among the 60 largest stocks on the selection list (i.e. ranked 61 or lower). The largest non-index stock on the selection list then moves up to take its place. CHART 2: Selection process based on the example of the EURO STOXX 50 EURO STOXX TMI 1. Compilation of selection list Inclusion of 60% as far as possible of the 19 sectors, in descending order by free-float market capitalisation Inclusion of all other EURO STOXX 50 stocks (automatic qualification) Selection list In descending order by free-float market capitalisation 2. Selection on basis of 40/60 rule Rank 40 and above on selection list: Non-index stocks are added to the EURO STOXX 50 and replace the smallest index stock Rank 61 and below on selection list: EURO STOXX 50 stocks are dropped and replaced by the biggest non-index stocks EURO STOXX 50 Source: Commerzbank Corporates & Markets, STOXX 8 August

4 Starting position of admission and removal candidates Decision based on closing price data of 30 August 2013, implemented after close of trading on 20 September 2013 The selection list compiled using the STOXX selection process described above is produced monthly and serves as the basis for adjustments to the EURO STOXX 50. This applies to both the regular annual reviews carried out in September each year and any extraordinary adjustments on the quarterly review dates, with the relevant lists used for this purpose additionally taking into account the most recent free-float factors. The selection list drawn up on the basis of closing price data of the last trading day in August, i.e. 30 August 2013, is used for the upcoming September adjustment. The decision will be announced on 2 September 2013 and any changes will be implemented after close of trading on 20 September Based on the current selection list as per end July 2013, an adjustment seems likely the admission of Deutsche Post and the removal of ArcelorMittal. This situation has solidified on a notional ranking list per closing prices on 6 August 2013 with a notional rank of 38 for Deutsche Post and the notional rank of 63 for ArcelorMittal. Furthermore, RWE s position (notional rank of 60) has deteriorated recently and the stock is now at risk of also being removed from the index and being replaced by Adidas (notional rank of 43). On the other hand, CRH (notional rank of 52) should remain in the index in the September adjustment. Given the small differences in free-float market capitalisation around the automatic threshold levels of 40 and 60, there may still be some shifts in admission and removal candidates. Table 1 contains excerpts from a notional selection list based on closing prices on 6 August 2013 compared with the current selection list for the EURO STOXX 50 (per closing prices on 31 July 2013). TABLE 1: Situation on notional and current EURO STOXX 50 selection lists Rank notional selection list Name In EURO STOXX 50? Free-float market capitalisation* ( m) Rank on current selection list per end-july Deutsche Post No 20, Generali Yes 19, Adidas No 18, CRH Yes 12, Publicis No 10, RWE Yes 10, ArcelorMittal Yes 9, Source: Commerzbank Corporates & Markets; *closing prices on 6 August August 2013

5 Deutsche Post AG: Currently an automatic admission candidate Deutsche Post at automatic admission ranking For over a year now, Adidas and Deutsche Post have been in the (wider) circle of EURO STOXX 50 admission candidates. Since then, the position of these two German stocks on the EURO STOXX 50 selection list has continued to improve. Deutsche Post s position has improved so much in recent months through a combination of outperformance and increase of free float that the stock is now at an automatic admission ranking on the EURO STOXX 50 selection list with a notional rank of 38. Consequently, Deutsche Post should be admitted to the EURO STOXX 50 in September 2013, with an expected index weighting of c. 1.20% (rank 38). Adidas: Promising admission candidate The Adidas stock has permanently qualified for the selection list since the regrouping of Philips from STOXX Personal & Household Goods into the STOXX Industrial Goods & Services. Since then, Adidas has been in the circle of admission candidates at ranks 41 to 44. Adidas, which presently has a notional rank of 43, requires a short-term outperformance ahead of the adjustment to move up into an automatic admission ranking of 40 and qualify on its own merit for the EURO STOXX 50. Should this not succeed, Adidas would have the status of non-index stock and would move up into the EURO STOXX 50 in the case of two automatic removal stocks. Chart 3 shows the development of the free-float market capitalisation of Deutsche Post and Adidas and the development of the free-float market capitalisation required for an automatic admission rank of 40. Whilst Deutsche Post has constantly been represented on the selection list for the EURO STOXX 50, Adidas only qualified for the selection list on the basis of the twostep selection process again in June for the first time since October The chart describes the current situation based on closing prices on 6 August CHART 3: Development of free-float market capitalisation of Adidas and Deutsche Post Free-float market capitalisation in bn 23 Deutsche Post Adidas rank 40 July / August Jan 10 May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 Source: STOXX; Commerzbank Corporates & Markets; August estimated on the basis of closing data of August

6 ArcelorMittal: Currently the weakest EURO STOXX 50 stock ArcelorMittal has an automatic removal ranking In the past few years, Luxembourg steelmaker ArcelorMittal has continually moved down on the EURO STOXX 50 selection list and currently has an automatic removal ranking 63 on a notional selection list. While a strong outperformance ahead of the adjustment could give the stock a chance of reaching rank 60 again, ArcelorMittal, which is currently the weakest index candidate with an index weighting of c. 0.55%, looks set to be removed from the EURO STOXX 50 as there is already an automatic admission stock with Deutsche Post. RWE: Directly at automatic removal ranking The second weakest index stock RWE (index weight of c. 0.60%) is at rank 60 on a notional selection list. The stock therefore risks dropping down to an automatic removal ranking through further underperformance ahead of the adjustment and therefore being removed from the EURO STOXX 50. CRH only belongs to the wider circle of removal candidates with a notional rank of 52 and should remain in the index in the September adjustment. CHART 4: Free-float market capitalisation of selected index stocks 24 ArcelorMittal RWE CRH rank 60 Free-float market capitalisation in bn July / August Jan 10 May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 Source: STOXX; Commerzbank Corporates & Markets; August estimated on the basis of closing data of August 2013

7 A total of c. 70bn is likely to be currently tied to the EURO STOXX 50 via strictly passive investments and ETFs Flow-of-funds analysis Funds currently tied to the EURO STOXX 50 Given the importance of the EURO STOXX 50, both for passive investors and also for ETF providers and derivatives that use the EURO STOXX 50 as a benchmark, the index adjustment should mean that these investors need to make portfolio shifts. This should support the share price of an admission stock around the time of the adjustment, while a removal stock is likely to see index-related selling. With regard to the expected index adjustment in September 2013, the flow-of-funds analysis suggests that a total sum of approximately 70bn is currently tied to the EURO STOXX 50. This sum results from a combination of strictly passive funds that emulate the index and so-called full replicator ETFs exchange traded funds which replicate the index exactly. Furthermore, almost the same amount should be tied up in various derivatives that use the EURO STOXX 50 as a benchmark. Alternative vehicles If we look at the September adjustments in the EURO STOXX 50, note that not all demand or supply by strictly passive investors or ETFs is traded via the exchange. We estimate that approximately half will take the form of alternative vehicles such as basket trades. Expected flow-of-funds of the possible index changes The admission of Deutsche Post to the EURO STOXX 50 with an expected EURO STOXX 50 weighting of c. 1.20% should result in a total index demand for c million Deutsche Post shares from strictly passive investors and ( full replicator ) ETFs. Given that about half is traded via alternative vehicles, this should correspond to a demand of a good five average trading days. The removal of ArcelorMittal, with a current weighing of c. 0.55%, should result in a total index supply of about 40.3 million ArcelorMittal shares from strictly passive investors and ETFs. On account of ArcelorMittal s low index weight, only minor index effects are likely in the case that ArcelorMittal is removed from the index. Should two adjustments be made, the total index demand should be c. 8.5 million Adidas shares, which should approximately correspond to an estimated six average trading days. At the same time, there should be a total index supply of about 20.1 million RWE shares. 8 August

8 EURO STOXX 50 structural analysis Germany remains behind France at rank two France and Germany remain the largest countries in the EURO STOXX 50 With regard to the upcoming index adjustment, Germany s share looks set to increase to c. 32.8% on admission of Deutsche Post. In the case of two adjustments, Germany s share would rise to c. 32.9%. Consequently, Germany should catch up a little on France, which has an expected country share of c. 37.3% (or 37.2%, respectively). The removal of ArcelorMittal would mean that Luxembourg after Finland in June 2013 is no longer represented in the EURO STOXX 50. Chart 5 shows the estimated country shares of Germany and France in an adjustment. CHART 5: Development of Germany s and France s shares in the index 38.0% % % 32.0% % % 26.0% 24.0% 22.0% DE FR 20.0% (e) Source: STOXX; Commerzbank Corporates & Markets Summary Industrial Goods & Services set to be the second largest sector in the EURO STOXX 50 for now While the STOXX Basic Resources sector will no longer be represented in the index, the weighting of the STOXX Industrial Goods & Services sector should increase to c. 10.0% on admission of Deutsche Post. It would therefore be the second largest sector after STOXX Banks, which has a share of c. 14.8%. The removal of ArcelorMittal from the EURO STOXX 50 would result in the index losing the only stock from Luxembourg and the only stock from the STOXX Basic Resources sector. The representativeness of the different countries and sectors would be reduced. On balance, this adjustment should strengthen the core euro zone, even if all stocks both on the admission and removal side come from the core euro zone. Consequently, the expected index adjustment would be an improvement of the quality of the index. 8 8 August 2013

9 Appendix Past changes to the Euro STOXX 50 TABLE 2: Past changes to the EURO STOXX 50 Date Incoming stock Other changes Country Outgoing stock Other changes Country Societe Generale France Degussa Germany Canal + France Tabcalera Spain Cie de Suez France Ercros Spain Banco Bilbao Vizcaya Spain Banesto Spain Casino Municipal de Cannes France Royale Belge Belgium Hochtief Germany Algemene Bank Netherlands Compart Italy Societe Intercommunale Belge Belgium Elsevier Netherlands Olivetti Italy Aegon Netherlands Compart Italy Electrabel Belgium Carrefour France ABN Amro Holding Netherlands Nationale Netherlands NV Netherlands ING Groep Netherlands Rodamco Netherlands SIP Italy Casino Municipal de Cannes France Carnauldmetalbox France AXA-UAP France Generale de Banque Belgium Societe Generale de Belgique Belgium Koninklijke Ahold NV Netherlands Banca Commerciale Italiana Italy UAP France STET Italy Deutsche Lufthansa Germany C.S.F. France Printemps France Carnauldmetalbox France Societe Generale de Belgique Belgium Karstadt Germany Nokia pref. Finland Canal + France PTT Nederland (per ) Netherlands Mediobanca Italy Allied Irish Bank Ireland L Oreal France Fortis Belgium UAP France Carrefour France Thyssen Germany AXA France Hochtief Germany Sanofi France VEW Germany ENI (per ) Italy Societe Generale de Belgique Belgium Rhone Poulenc France Viag Germany Schneider France Cie de Suez France Metro Germany Generale de Banque Belgium Thyssen Germany Peugot France Credito Italiano Italy Solvay et Cie Belgium Deutsche Telekom (per Germany Banco de Santander Spain ) Telecom Italia Italy SIP Italy Portugal Telecom Portugal Sanofi France L Oreal France Thyssen Germany Paribas Compagnie France Schering Germany Financiere France Telecom France Pinault Printemps France Paribas Renaming of Paribas France Paribas Compagnie Financiere Source: Commerzbank Corporates & Markets 8 August

10 TABLE 2: Past changes to the EURO STOXX 50 (continued) Date Incoming stock Other changes Country Outgoing stock Other changes Country Koninklijke KPN Netherlands Koninklijke PTT Netherlands KPN Unicredito Italy Credito Italiano Italy Daimler Benz UMA Germany Daimler Benz Germany DaimlerChrysler After Chrysler merger Germany Daimler Benz UMA Germany Totalfina France Petrofina Belgium Banco Santander Spain Akzo Nobel Netherlands BASF Germany Allied Irish Bank Ireland Bayr. Hyp. Vereinsbank Germany Elsevier Netherlands Dresdner Bank Germany Fiat Italy Munich Re Germany Lufthansa Germany Sanofi-Synthelabo France Portugal Telecom Portugal Suez Lyonnaise des Eaux France Schneider Electric France BNP France Paribas France Pinault Printemps France Elf Aquitaine France Aventis Due to Hoechst-Rhone- Poulenc France Rhone-Poulenc France Canal + France Mannesmann Germany ENEL Italy Saint-Cobain France E.ON Germany VEBA Germany Groupe Danone France Electrabel Belgium San Paolo IMI Italy Metro Germany Volkswagen Germany Canal + France TIM Italy Dresdner Bank Germany Saint Gobain France KPN Netherlands Fortis Netherlands Fortis B Belgium Lafarge France Pinault Printemps France Telecom Italia Due to Olivetti deal Italy Telecom Italia Italy Iberdrola Spain Bayerische Germany HypoVereinsbank SAP Sanofi-Aventis deal Germany Aventis France Crédit Agricole France Volkswagen Germany Allied Irish Banks Ireland TIM Italy Renault France Royal Dutch Petrol Due to Royal Dutch Netherlands Shell A Intesa SanPaolo Due to San Paolo Italy San Paolo Imi Italy Imi/Banca Intesa Arcelor-Mittal Luxemburg Ahold Netherlands Vinci France Allied Irish Banks Ireland Schneider Electric France Lafarge France Volkswagen Germany Endesa Spain Deutsche Börse Germany ABN Amro Netherlands GDF Suez Due to Gaz de France Suez Due to Gaz de France France/Suez France/Suez Alstom France Alcatel-Lucent France Anheuser-Busch InBev Belgium Fortis Netherlands CRH Ireland Renault France Unibail-Rodamco France Volkswagen ord. Germany BMW (ord.) Germany Aegon Netherlands Volkswagen pref. Germany Alstom France Inditex Spain Credit Agricole France ASML Netherlands Deutsche Börse AG Germany Essilor France Telecom Italia Italy EADS France Nokia Finland Source: Commerzbank Corporates & Markets 10 8 August 2013

11 EURO STOXX 50 index TABLE 3: EURO STOXX 50 General information Name EURO STOXX 50 index Type of index Price index (also calculated as a performance index); free-float weighting (effective 18 September 2000; free-float factors according to STOXX definition; see Features); blue-chip index of EURO STOXX Country coverage Euro zone (12 countries with as currency) Number of stocks 50 Period of calculation 9:00 am until 6:00 p.m. CET Base date Last day of 1991 Base value 1,000 Base currency (also calculated in $) Officially calculated back to Last day of 1986 Publication frequency 15 seconds Sector indices No Listed options Eurex; Monep Listed futures Eurex; Monep Reviews and implementation Committee STOXX Limited Supervisory Board Regular review date Beginning of September; based on data from last day of August Effective date of regular adjustment Third Friday in September Admission/removal criteria Liquidity A stock is removed if it was not traded on 10 consecutive trading days within (any) three months. Market capitalisation Selection list with two-stage process (see Features) Free float Free-float changes of more than 5% (due to corporate actions) will be adjusted two days after announcement, changes of less than 5% will be adjusted quarterly (third Friday in March, June, September and December) Takeover code No Designated sponsor and/or market maker No Admission of investment funds/holdings No / no Admission of only one class of shares Yes (only ordinary shares or shares with similar features) Features Maximum weight 10% Definition of free-float factor (in %) 100% minus block ownership (if each block amounts to at least 5%) Stage 1: Generating the selection list Euro-zone stocks are added to the selection list from the 19 STOXX TMI sectors in descending size until as close as possible to 60% of free-float market capitalisation of the respective sector is represented. EURO STOXX 50 stocks are automatically included on the selection list. The 40/60 rule is then applied Stage 2: 40/60 rule Non-index stocks that have a market capitalisation ranking of 40 or higher replace the smallest stocks in the EURO STOXX 50. EURO STOXX 50 stocks are replaced at a market capitalisation ranking of 61 or lower by the largest non-index stock on the selection list Selection list Monthly selection list serves as basis for the review decisions Fast-entry rule Stocks can also be included in the index at the quarterly adjustments (third Friday in March, June, December), replacing the weakest index stock, if with the most recent free-float factors taken into account they rank 40 or higher on the selection list. Fast-exit rule If a stock is ranked 75 or lower on two consecutive selection lists, it is removed from the index on the fifth trading day of the month (at the closing price) on which the second selection list applies and is replaced by the best non-index stock. Codes Reuters.STOXX50E Bloomberg SX5E Datastream DJES50I Source: Commerzbank Corporates & Markets 8 August

12 Companies and codes TABLE 5: Companies, Bloomberg codes, prices Bloomberg code Price in Deutsche Post AG DPW GY Equity Assicurazioni Generali SpA G IM Equity Intesa Sanpaolo SpA ISP IM Equity 1.40 Pernod Ricard SA RI FP Equity Essilor International SA EI FP Equity Adidas AG ADS GY Equity CRH PLC CRH ID Equity Ryanair Holdings PLC RYA ID Equity 7.15 Publicis Groupe SA PUB FP Equity RWE AG RWE GY Equity ArcelorMittal MT NA Equity 9.23 Source: Commerzbank Corporates & Markets, Bloomberg; closing prices on 6 August August 2013

13 Distribution of ratings: Number of recommendations from Commerzbank, CM- Research, at the end of the second quarter 2013 thereof recommendations for issuers to which investment banking services were provided during the preceding twelve months 96 (48.9%) Buy / Add 29 (68.9%) 77 (39.3%) Hold 8 (19.1%) 23 (11.8%) Sell / Reduce 5 (12.0%) This document has been created and published by the Corporates & Markets division of Commerzbank AG, Frankfurt/Main or Commerzbank s group companies mentioned in the document. Commerzbank Corporates & Markets is the investment banking division of Commerzbank, integrating research, debt, equities, interest rates and foreign exchange. 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