Kioxia to Draw $18.5 Billion Inflows on Topix Review, SMBC Says

Kioxia Holdings Corp. shares may see passive inflows of ¥3 trillion ($18.5 billion), because of the potential jump in its weighting on the benchmark Topix index, according to SMBC Nikko Securities Inc.

The Japanese memory chipmaker’s weighting on the Topix will more than triple in the October rebalancing after Japan Exchange Group Inc. reassesses its ratio of free-float to 50% from 15%, SMBC quant analysts including Hayato Yoshida estimate in a report on July 3.

Increased weighting at 2.678% would likely trigger index-tracking funds to buy the stock, it said, an amount that would roughly equal its 30-day average daily turnover.

The estimated passive flow would be of an “unprecedented scale,” the analysts wrote, adding that the changes may be staggered to minimise market impact.

The additional inflows may provide a boost for Kioxia’s shares. After rallying more than 940% this year through last month’s peak, the stock has pulled back about 25% amid growing concerns over an AI bubble.

Kioxia’s free float has been rising as major shareholders offload some of their stakes. Its annual securities report released in June showed the combined stake by Kioxia’s top 10 holders including Toshiba Corp. and Bain Capital fell to 53% from 89% from the previous fiscal year.

In addition to the regular index review that adjusts for free floats, Japan Exchange Group will kick off its Topix reform in which stricter requirements on size and trading activity will apply.

Investors Position for Prospective Topix Entrants: Taking Stock

While Kioxia will likely benefit due to its large turnover, smaller, less actively traded stocks may suffer. NLI Research Institute said in a June report that the number of Topix constituents will fall to less than 1,000 from more than 1,600 currently.

The changes will likely spur passive buying of large caps, but they may not necessarily boost share prices as they tend to be highly liquid, according to Shota Sando, an analyst at Tokai Tokyo Intelligence Laboratory Co. Selling pressure on stocks excluded from the index meanwhile could be substantial as the market has been slow to price in the potential impact, he said.