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Tesla value set to jump $40 billion as S&P 500 beckons

Nov 17 (Reuters) - Shares of Tesla Inc rose 11% before the bell on Tuesday, adding around $40 billion to the value of the electric carmaker and giving another boost to the fortune of billionaire Chief Executive Officer Elon Musk.

S&P Dow Jones Indices confirmed after markets closed on Monday that they would add the company to Wall Street’s main index from Dec. 21, firing the starting gun on a major reorganization of investment funds that track the basket of stocks.

At $400 billion, Tesla’s market capitalization is a hundred times that of the S&P’s smaller companies, according to Refinitiv data, and potentially making it the biggest ever addition to the index.

S&P DJI said the addition of the car company would require investment funds indexed to the S&P 500 to sell about $51 billion worth of shares of current member companies so that their portfolios correctly reflect the index.

“Potentially one of the pushbacks on adding Tesla to the S&P was the elevated stock price,” Credit Suisse analyst Dan Levy wrote in a note. “The stock’s recent pullback provides better opportunity for index trackers to build positions.”

Bolstered by a decade of stock market gains, the combined market capitalization of the S&P 500 now totals close to $32 trillion, and S&P DJI data at the start of this year showed investments indexed to it reached $4.6 trillion.

If the pre-market gains hold, Tesla’s own value will top $440 billion, more than the S&P gained on Monday after news emerged of successful COVID-19 vaccine trial data from Moderna Inc.

The run in to Tesla’s addition next month may see more speculative buying.

In 1999, Yahoo surged 64% in five trading days between the announcement that it would be added to the index and its inclusion. Yahoo’s market capitalization at the time was only $56 billion.

“The 12% move is probably a short squeeze more than anything else,” said Mark Taylor, sales trader at Mirabaud Securities, London.

“I believe in letting the dust settle for a few days and see how things pan out in terms of how much tracker money has gone behind this.” (Reporting by Subrat Patnaik, Sruthi Shankar in Bengaluru and Noel Randewich in San Francisco; editing by Patrick Graham)

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