World's Least Populated National Benchmark Still Has a Vacancy

There aren’t enough eligible stocks to fill the developed world’s least-populated national benchmark.

Portugal’s PSI 20 Index, which despite its name currently has just 17 members, will welcome two more at the end of this week -- Ibersol SGPS SA and Novabase SGPS SA. While the additions will inflate the number of companies in the gauge to the highest since 2014, they will only boost its market value by 3 percent, and still leave it one short of a full gauge.

Euronext NV has struggled to come up with candidates for the PSI 20 since the collapse of the Espirito Santo banking empire. Saddled with misfortunes that made it smaller than Vietnam’s and drained it of liquidity, the Portuguese stock market’s ability to stand alone is being called into question by some investors.

Even funds focused on the country are casting their nets wider. Lisbon-based Banco Invest SA revamped its Portuguese stocks fund three months ago to include firms also listed in Madrid.

“We did this because we think that we can better serve our clients by offering them a much wider scope of companies to invest in,” said Paulo Monteiro, who manages the bank’s newly-broadened Invest Iberia fund.

In a country where family businesses account for more than 70 percent of all companies, CaixaBank SA’s acquisition of Banco BPI SA last month further impoverished the PSI 20. And while Euronext’s Lisbon branch is courting family-owned firms to list shares on exchange, there have been just two initial public offerings in Portugal since the financial crisis. The nation’s broader PSI All-Share Index has only 46 stocks.

Euronext’s Iberian Index, started in 2009, lumps together the 30 most-traded stocks in Portugal and Spain. On average, some 427 million shares have changed hands daily this year on the index, or more than five times the average of the PSI 20, and 13 percent more than for Spain’s IBEX 35 Index.

New Additions

Restaurant-operator Ibersol, up 10 percent this year, and computer-services firm Novabase SGPS SA -- which had been a part of the PSI 20 until 2013 -- will boost the Portuguese benchmark’s market value by about 434 million euros ($452 million) when trading starts on March 20.

Average daily trading volume in the PSI 20 rose every year until 2015, according to data compiled by Bloomberg going back to 2009. After a 34 percent drop in mean volume last year, the index is on track for its quietest first quarter in six years, the data show.

Other European national benchmarks with 25 members or fewer include the Netherlands’ AEX Index, worth 32 times as much as the PSI 20, and gauges in Norway and Denmark. Fund providers often replicate indexes for use in passive investing, and the most popular -- like the S&P 500 Index in the U.S. -- have trillions of dollars in assets tracking them.

For investors seeking exposure to Portugal, there are few avenues left.