Troubled fintech payments providers Zip Co and EML Payments are facing renewed selling pressure on their ASX-listed securities in the next two weeks after both companies were removed as members of the S&P/ASX 200 index.
Index-hugging fund managers are expected to offload their remaining interests in both companies ahead of the quarterly compositional reset of the benchmark index on 19 September.
S&P Dow Jones Indices announced on Friday that Zip and EML were among eight companies earmarked for removal from the index.
The market capitalisations of Zip and EML have collapsed in the last 12 months as they continued to post large bottom lines losses and deal with regulatory and governance challenges.
Zip’s market worth plummeted by A$3.5 billion to around $300 million in the twelve months to the end of June, while EML’s market cap slumped by almost $800 million to around $400 million in the same period.
Zip has been a member of the S&P/ASX 200 index since September 2020 when retail and professional investors were aggressively bidding up buy now pay later stocks on hopes they would displace traditional payments products such as credit cards.
While over-hyped BNPL players have garnered some market share from traditional payments providers in recent years, they have also accumulated large bottom line losses that have destroyed shareholder value.
That has resulted in most institutional investors reducing their exposures to companies such as Zip, although some index fund managers have continued to hold the stock as part of their overriding strategy to track the S&P/ASX 200 benchmark.
However, such support is likely to evaporate when Zip is removed from the index in a few weeks.
Similar pressure is likely to affect trading in EML scrip, although the impact could be more severe given that EML has suffered reputational damage from regulatory investigations and a fraud event in its European operation.
This could force several value managers also to exit their positions in the company.
Respected Adelaide based fund manager Argo Investments announced last year that it became a shareholder in EML, but it has not indicated whether it plans to retain an interest in the company going forward.
EML scrip is trading near a 7-year low and closed on Monday down 1 cent to 86 cents.
Zip’s share price declined 3.5 cents or 4 per cent to 83 cents.