Shares of Nemaska Lithium Inc. (TSX:NMX) have bolted ahead Monday morning to their highest level since March 14 on news Friday evening from S&P Dow Jones Canadian Index Services that changes were made to its S&P/TSX SmallCap Index.
As of next Monday, September 18, Nemaska will become a part of the index, along with 42 other new components. Simultaneously, 32 companies are being deleted from the index.
As described by S&P Dow Jones Indexes, the S&P/TSX SmallCap index is an investible index for the Canadian small cap market that is float adjusted and market cap weighted, developed with industry input as the ideal benchmark for those with small cap exposure of the Canadian equity market.
Fellow lithium explorer Lithium Americas Corp. (TSX:LAC) was also added. Just as with NMX, LAC is also enjoying a strong showing on Monday, climbing 8.6% to $1.52 in early afternoon trading. That's the highest level for the stock in over six years.
No pure lithium plays were removed from the index.
The effect of a stock being included in an index has long been debated, but generally thought to have a positive impact as inclusion creates awareness and demand for a company's stock. This is known as the "Indexing Effect."
Some of the logic is underpinned by passively managed Bay and Wall Street funds and institutional investors having certain amounts of capital allocated for certain indexes in order to stay diversified.
Whatever the rationale, it's working for Nemaska and Lithium America today.
Of course, being in an industry expected to experience a supply shortfall due to the electric car evolution isn't hurting matters either. Shares of NMX have pulled back from their intraday high at $1.42, but are still holding gains of 5.4% at $1.37 about halfway through the trading day.
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