How exaggerated is the 'weight' of the 'weight-loss drug star' Novo Nordisk? One stock accounts for 50% of the index weight.
Nordic orlistat may be able to help others solve their weight problems, but it cannot easily solve its own problems.
How impressive is Novo Nordisk, the European stock leader that surpasses LVMH Group? Just one stock can account for half of the index's weight.
Currently, the total market value of the OMX Copenhagen 25 Index, which covers the 25 largest companies in Denmark, is approximately $750 billion. The market value of a single Novo Nordisk stock is as high as $430 billion, accounting for more than half of the country's stock index. Even if only the free float shares are considered, Novo Nordisk's market value still exceeds half of the entire index.
The high weight restricts the stock performance of Novo Nordisk. According to the European Common Fund Management Regulations, fund managers are not allowed to have a position in a single stock exceeding 10%.
Due to this regulation, many Danish fund managers have been forced to sell Novo Nordisk for years. Whenever the proportion of Novo Nordisk's holdings exceeds 10%, they have to sell once, regardless of the fundamental factors. Although the selling by fund managers will not prevent Novo Nordisk from continuing to rise, if the regulations were more relaxed, the stock price performance of Novo Nordisk might be even better.
In addition, most of the asset management markets in Europe still operate at the national level rather than the European level. Jesper Neergaard Poll, Chief Investment Portfolio Manager at Danske Bank Asset Management, roughly estimated that there may be DKK 125 billion (equivalent to approximately $18 billion) tracking the Danish benchmark index.
In contrast, the situation in the US market is different. The largest component stock by market value, Apple, only accounts for 7% of the total market value of the S&P 500. Another leading player in the weight loss drug industry, Eli Lilly, has a market value of over $540 billion and a forward P/E ratio of 48, while Novo Nordisk has only 32.
Neergaard Poll commented to the media:
"The US stock market seems to be more prone to speculation on weight loss and other themes that the media likes, perhaps because individual investors are more involved."
Novo Nordisk may be able to help others solve their weight problems, but it cannot easily solve its own problems.