Fletcher Building shares rally after retaining MSCI position

Shares in Fletcher Building and Mercury Energy rallied sharply on the back of their inclusion in the influential MSCI New Zealand Index.

Contrary to market expectations, Fletcher Building retained its spot, while Mercury was a new addition to the index.

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Speculation had mounted that a poor performance could lead to Fletcher Building being ditched from the index.

Contact Energy, which had been talked about as a possible addition to the index, missed the cut, and its shares dropped 8c cents to $7.26 as a result.

By late afternoon, shares in Fletcher Building were up by 24c, or 5 per cent, at $5.08, while Mercury shares were up 13c, or 2.8 per cent, at $4.90.

A stock's inclusion in indices can be an important influence on how well its share price performs, particularly because of the growing popularity of exchange traded funds, which allow people to invest in stocks in proportion to their index weightings.

David Price, director of institutional equities at Forsyth Barr, said the inclusion of Mercury and Fletcher Building was "probably the favoured option".

"It was not a surprise, but market's reaction would certainly suggest that," he said.

"If it [Fletcher Building] had not stayed in, there was potentially a lot of selling to be done," Price said.

Contact, which has extensive hydro generating capacity in the southern South Island, had been seen as a contender until the news came out that Rio Tinto, which owns the Tiwai Point aluminium smelter near Bluff, was looking at its options with a view to possible closure of the plant.

The MSCI NZ index measures the performance eight businesses covering about 85 per cent of the free float-adjusted market capitalisation in New Zealand.

Its other members are Fisher & Paykel Healthcare, a2 Milk, Auckland International Airport, Spark NZ, Meridian Energy and Ryman Healthcare.