Easyjet and Carnival To Drop From The FTSE 100 Index

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UK-based discount airline Easyjet PLC (LON: EZJ.L and US  OTC: ESYJY) and cruise company Carnival PLC (LON: CCL.L and US NYSE: CUK)  will drop from the FTSE 100 Index on June 19, according to a press release by FTSE Russell. This is a followup post to an earlier today where I discussed about Lufthansa getting kicked out of DAX Index.

After dropping from FTSE 100, Carnival will be added to the FTSE 350 Index.

The 5-year return of Easyjet and Carnival stocks trading on the US markets are shown in the chart below:

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Source: Yahoo Finance

Despite a recent jump, both stocks are down significantly.

Airline and cruise sectors are high risk plays now as nobody knows when these industries will fully recover.

Disclosure: No Positions

 

Average Stock Holding Periods for NYSE 1929 to 2018 : Chart

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The average holding period for stocks continues to decline globally. In the US it is getting especially worse with the introduction of commission-free trades by brokerages last year and millennials’ propensity to trade often with apps like Robinhood and others. According to a report by Ted Maloney and Robert Almeida, Jr at MFS, the average holding period for a stock listed on the NYSE is approximately nine months. The following chart shows the continuous decline in stock holding periods since the 1960s:

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Source: Lengthening the Investment Time Horizon, MFS

For more details on this topic you checkout my earlier article: Duration of Stock Holding Periods Continue to Fall Globally

German Airline Lufthansa To Be Booted Out Of The DAX Index

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The German airline group Lufthansa will be kicked out of the benchmark DAX Index on June 22nd this year according to a release by Deutsche Boerse Group. The company will be added to the MDax index which represent mid-cap companies. Lufthansa’s stock price has fallen dramatically this year due to the collapse in air travel in the Corona pandemic. Though the price has increased recently the price is still 33% lower than at the end of 2019.

The 5-year return of Lufthansa’s ADR (DLAKY) on the OTC market in the US is shown in the chart below:

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Source: Yahoo Finance

The company trades on the Frankfurt Exchange under the ticker LHA. The below chart shows the long-term return on the Frankfurt-traded stock:

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Source: Deutsche Boerse

The airline is unlikely to go bankrupt as it is being bailed out by the German government with an loan of 9.0 Billion Euros. Below is an excerpt from an article at Deutsche Welle:

Major losses for Lufthansa

Lufthansa’s share price was already falling well before the pandemic, but lockdowns and global freezes on passenger travel have hit the company especially hard.

On Wednesday, the company said it would undergo “far reaching” restructuring after posting a first quarter net loss of €2.1 billion.

The German government and Lufthansa agreed to a €9 billion ($10.2 billion) bailout package earlier this week.

Under the deal, the German government will take a 20% stake in Lufthansa, making it the group’s biggest shareholder. Shareholders will be asked to back the deal during an online meeting on June 25.

Source: Lufthansa loses spot on Germany’s DAX stock index, Deutsche Welle

Lufthansa has been part of the DAX since it was first created in 1988.

Lufthansa will replaced by Deutsches Wohnen, Germany’s second-largest property company.

Key Takeaways:

  • Since bankruptcy is avoided with the bailout, investors can pick up shares with some confidence. However revival of the airline industry is up in the air unless a vaccine is found for Covid-19.
  • Funds holding Lufthansa will be forced to sell on June 22. The iShares MSCI Germany ETF (EWG) has less than 0.5% weighting in Lufthansa. UK-listed iShares Core DAX® UCITS ETF (DAXEX) which tracks the DAX will also be forced to liquidate the position. Another smaller size ETF that holds Lufthansa is the UK and Swiss-listed Vanguard DAX UCITS ETF (VDXX).
  • Lufthansa has suspended the 2019 dividend payment due to the 99% drop in passenger volume due Covid-19.

Related:

Disclosure: No Positions

The Top 10 Countries in Tobacco Usage: Infographic

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The Top 10 countries with the highest tobacco usage is shown in the graphic below. In Europe, the heaviest smokers are Serbia, Bosnia-Herzegovina, Bulgaria and Greece. Over 45% of the people in Burma(Myanmar) smoke making it the top country in Tobacco use in the world. Burma is followed by Chile and Lebanon. Indonesia, with a population of over 267 million is a major market for tobacco companies.

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Source: RFE/RL Infographics