Index rebalancing is now the biggest event in markets

Subscribe to enjoy similar stories.What do the Indonesian stockmarket, South Korean government bonds and Robinhood, an online broker, have in common? Not much, you might think. But over the past year investors in all three have quivered before the same phenomenon: the awesome power of financial indices.The largest of these now exert a tidal pull on markets. As of 2025, around $36trn-worth of capital was in passive investment funds.

These automatically track decisions made by MSCI, FTSE Russell, S&P Global and the like on which assets to buy and in what quantities. Many trillions more are supposedly invested actively, but by “closet index-huggers”—timid managers who fear straying too far from their benchmarks.Ironically, all this has given rise to a strategy based on discretion and guesswork. Hedge funds and other traders try to surf ahead of the wave of portfolio rebalancing generated by indices changing their weights.

Some corkers are on the horizon, with buzzy and enormous firms such as SpaceX and Anthropic expected to list their shares in the coming months, and to join stockmarket indices soon after. Sadly, making money from such events is getting harder.If markets were perfectly efficient, it would always have been nigh-impossible: as soon as an asset looked likely to enter an index, its price would adjust to anticipate tracker funds’ rebalancing. But markets are not perfect and these trades are large enough to move them.

Goldman Sachs, a bank, reckons $7.8bn could flow out of Indonesian stocks if the country is downgraded to a “frontier market” by MSCI in June. The share price of Robinhood surged by 16% in September after it joined the S&P 500 index. South Korean bonds’ entry into the FTSE World Government Bond