(BFM Stock Exchange) – If the famous Parisian index has 40 values, not all have the same impact on its global level. Explanations.

It is a concept that may be a little confusing for a neophyte: all the actions of the CAC 40 do not have the same impact on the variation of the index.

If LVMH or Totalnergies drops by 5%, this drop will have much more influence than if Edenred or Teleperformance accuses the same withdrawal.

>> Access our exclusive graphic analyzes, and enter into the confidence of the trading portfolio

How to explain it? Unlike certain clues (such as the Nikkei 225) which are calculated by performing a simple arithmetic average of their residents’ scholarships and therefore grant the same weight to each company, the CAC 40 adopts another approach.

Each member of the CAC 40 has a weight, or more exactly, a “weighting” which depends on its size on the stock market, that is to say on its market capitalization (the value of all of its shares).

A story of floating capitalization

Important point and which can be confused even among experts, this “weighting” does not depend on simple capitalization but on so -called “floating” capitalization.

According to the website of the Ministry of the Economy, this nuance has existed since December 1, 2003, the CAC 40 adapting to the practices in force on the other major indices.

“This means that, since that date, the number of securities available for purchase on the market for a company is taken into account in the calculation of the index,” explains the site.

“The only market capitalization of the company is no longer enough. This has the consequence of promoting companies which have lower capitalization with many securities available to the purchase compared to large companies still owned by the State for which few securities are offered on the markets,” we can still read.

Penalized family groups

As we wrote in a previous article, this reform also aimed to limit the impact on the public group index like France Telecom.

This also gives less weight to family companies. Take a simple example with LVMH. Its total market capitalization is around 303 billion euros. But the Arnault family has around 49% of the capital.

The floating, that is to say therefore the share of titles which freely exchange on the market, thus represents around 150 billion euros. It is this last figure which is retained to calculate the weighting of LVMH in the index.

Because its floating is therefore relatively limited, LVMH took a long time before becoming the first CAC 40 weighting. The number one in luxury had obtained the status of the first market capitalization of the index, and therefore of the Paris Stock Exchange.

But it was not until March 31, 2020 that LVMH became the first weighting, and therefore the group whose variation has the most influence, on the CAC 40. LVMH had then passed ahead of total, whose floating is much higher in percentage (around 90%).

This taking into account of floating capitalization more widely upsets the hierarchy. Hermès and L’Oréal respectively display capitalizations of 264.9 billion euros and 196 billion, against 131 billion euros for Schneider Electric. But their floating is very different, with a rate of 32.5% for Hermès, 43.25% for L’Oréal and 80.9% for Schneider Electric.

Ultimately, the floating capitalization of Schneider Electric (106 billion euros) is therefore greater than that of Hermès (86.13 billion euros) and L’Oréal (84.8 billion). And its weight in the CAC 40 is therefore higher.

Liquid more important than Hermès

We understand better why the CAC 40 suffered on February 24, losing 0.78%, whereas are few titles evolved in the red, with almost all limited folds. On this date, Schneider Electric had nevertheless dropped by 6.9%, accusing the most withdrawal. In view of its weight in the index, the title had almost sealed the CAC 40.

What are the groups that have the most influence on the CAC 40? On the database provided by Euronext and stopped at the end of February 25, we established the classification in the infographic below. It should be noted that since that date these weights have been able to change slightly with the evolutions of the titles of each company.

We note that if LVMH occupies the first place with a weighting of 9.46%, the luxury group does not precede Schneider Electric (7.54%) and Totalenergies (7.23%) by far.

Air Liquide, which is only the ninth company of CAC 40 in terms of capitalization, dates back to fifth place (5.52%) thanks to its floating close to 100%.

Conversely, with their low floating, Hermès (4.66%) and L’Oréal (4.58%) only point to ninth and tenth row. Air Liquide therefore has more impact on the variation of the CAC 40 than these two heavy goods vehicles …

Companies with the least impact on CAC 40 remain Eurofins (0.37%), Bouygues (0.32%) and Teleperformance (0.29%).