Shell and Unilever are being kicked out of America's most widely followed stock market index, in a move designed to turn the S&P 500 into a pure measure of US market performance.
Shares in the UK giants were badly hit by the news, which emerged late on Tuesday night. US investors moved to sell their holdings before the changes take effect next week.
David Blitzer, the chairman of the Standard & Poor's index committee and guardian of the S&P 500, said tracker funds linked to the S&P 500 had complained about having to buy overseas stocks, which are traded in the US as American Depository Receipts.
"The change will mean that index funds and exchange-traded funds can expect lower operating and transaction expenses and less tracking error. We also believe that removing the non-US companies will make the S&P 500 a more useful benchmark for tracking large-cap US equity market performance."
Seven stocks are being ejected. They are the Dutch half of Shell, Royal Dutch, and Unilever, plus five Canadian companies, which include Nortel Networks, the telecoms equipment supplier.
Three times the usual number of Unilever shares were traded in London yesterday, and the stock fell 19p to 577p.
Shell dived 4.6 per cent to 476p. Almost a quarter of Royal Dutch/Shell's shares are held in the US. Peter Nicol, an analyst at ABN Amro, said: "For most US fund managers, Royal Dutch has been a clear alternative to ExxonMobil and it is likely that there will be re-allocation of energy and wider portfolios. While the S&P claim that there is no long- term impact on companies coming out of the index, the risk must be that shares will have to flow back to Europe and find a new home."
ABN Amro calculates that index tracking funds will need to sell about 200 million Royal Dutch shares and 50 million in Unilever. These numbers are huge compared with their average US daily trading volume.
Unilever said it was "disappointed with, and surprised by, the decision from S&P" but pointed out its equity in the US was held mostly by fund managers "who have made a positive investment decision, rather than merely track the index".
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