The Week in Breakingviews: The indexes of power

MSCI

26/06/2026 16:47

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Peter Thal Larsen

    LONDON, June 28 (Reuters Breakingviews) - Welcome back! Britain is set to welcome its seventh prime minister in a decade. Throw in this week’s heatwave, and the United Kingdom looks and feels increasingly like a southern European country. Maybe the men’s football team will also conform to type. Let me know what you think. If this newsletter was forwarded to you, sign up here to get it in your inbox every weekend.
OPENING LINE
“The U.S. state of Idaho is known for potatoes. Not coincidentally, it’s also where one of the world’s most valuable chip companies is headquartered.”
Read more: Micron’s rise strains tech giants and credulity.
FIVE THINGS I LEARNED FROM BREAKINGVIEWS THIS WEEK
Prediction markets suggest the U.S. Republican Party may lose both houses of Congress in November. (Blame the Iran war)

        Looser restrictions on oil exports could earn Iran $50 billion a year. (One-eighth of GDP)
      

        India’s Jio Platforms lags its main telecom rival Bharti Airtel on key financial metrics. (Hard to justify a premium)
      

        The share of electricity in the UK’s final energy consumption is no higher than two decades ago. (Time for a revolution)
      

        Russian defence spending consumes nearly half the government budget. (The economy is stagnating)
TRACKING TERROR
When Standard & Poor’s unveiled its new “500” index to financial writers in 1957, guests sitting down to lunch in New York could not have imagined that this analytical tool would one day guide the destination of trillions of investment dollars. Yet the relentless rise of low-cost index-tracking funds means any tweaks S&P and its rivals make to their benchmarks are now major events in global markets. Greater scrutiny is inevitable – and potentially awkward.
Consider two major recent decisions. Earlier this month S&P Dow Jones Indices concluded, after a consultation, not to make any changes to its flagship index to accommodate the arrival of so-called “MegaCap” companies. This technical judgment means SpaceX SPCX.O and Anthropic will not get speedy admission to an index tracked by funds worth about $13 trillion. MSCI similarly opted to maintain the status quo this week. The company decided not to promote South Korea from an emerging market to a developed market, while postponing the possible relegation of Indonesia to lesser frontier market status. The result is that funds worth roughly $1.4 trillion following MSCI’s Emerging Markets Index will continue to rise and fall with runaway chip giants Samsung and SK Hynix, which together make up almost 15% of the benchmark.
These judgments reveal an uncomfortable truth about index investing. For all the talk of “neutral” and “passive” asset allocation, maintaining a benchmark means making constant subjective calls about the suitability of companies based on size, profitability, and free float. Firms adapt their listings to qualify for certain indices; investors try to anticipate which stocks will make the cut. There’s also evidence that members of the S&P 500 club enjoy higher valuations than smaller but faster-growing companies.
Some decisions are momentous: China’s stock markets were already the world’s second largest when MSCI first admitted mainland equities to its emerging markets index in 2017. Meanwhile, the explosion of giant private companies meant SpaceX instantly became the seventh-largest listed U.S. company. There are no easy answers.
Yet these choices are being made by private companies with financial motivations. Both S&P Global and MSCI earned about $1.8 billion in revenue from their index units last year. And while S&P resisted pressure to give SpaceX special treatment, rivals Nasdaq and FTSE Russell tweaked their rules to favour Elon Musk’s rockets-to-chatbots company. The judgments are also far from transparent: you will search corporate websites in vain to find out how many people sit on the committees making index decisions, let alone their names.
Of course, investors are free to choose whether or not to follow an index. Benchmarks which prove capricious or excessively volatile will lose customers. Even so, the gradual transformation of a niche analytical exercise into a fulcrum for global markets recalls the way credit ratings agencies became unwitting enablers of the debt bubble of the early 2000s. The subsequent crash led to intense scrutiny and increased regulation.
A sharp stock market correction, or the collapse of a few big companies, could have severe consequences for index-tracking investors. The resulting inquest would stretch far beyond a few dozen journalists having lunch in New York.
CHART OF THE WEEK
The movie business has been at the centre of U.S. economic and cultural power for over a century. Yet recent data suggests Hollywood is in trouble. The end of the online streaming boom, cost-cutting mergers, and the 2023 strike by actors and writers have left Tinseltown feeling glum. Employment in the motion picture and sound recording industries in Los Angeles is down 40% since 2022. Throw in the threat from artificial intelligence, and a happy ending looks far off, argues Jennifer Saba.
THE WEEK IN PODCASTS
Talk to any chief financial officer these days, and they will probably start complaining about the rising and unpredictable cost of artificial intelligence tokens. Growing use of large language models, combined with a shift to usage-based pricing, means many companies are suffering sticker shock. Robyn Mak joined Aimee Donnellan and Una Galani in the Viewsroom to debate how companies can get costs back under control.
Is Elon Musk a one-off, or does he represent a new form of capitalism? That’s the urgent question facing the SpaceX tycoon’s commercial rivals, his investors, and policymakers. Seeking an answer, I talked on The Big View to Quinn Slobodian, professor of international history at Boston University and co-author with Ben Tarnoff of “Muskism: A Guide for the Perplexed”.
PARTING SHOT
Tech entrepreneurs have been promising self-driving cars for years. Now robotaxis are an increasingly common sight in big cities around the world. London is becoming a battleground; the British capital is hosting robotaxi rivals from China, the United Kingdom and the United States. Their success in navigating London’s narrow and busy streets is set to be a key test for the emerging technology, writes Katrina Hamlin.
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(Editing by Neil Unmack; Production by Oliver Taslic)
((For previous columns by the author, Reuters customers can click on LARSEN/peter.thal.larsen@thomsonreuters.com))