Appen and PolyNovo tumble after being kicked out of the ASX 200 along with these shares

These shares are being kicked out of the ASX 200 index…

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In morning trade, the Appen Ltd (ASX: APX) share price has come under pressure again.

At the time of writing, the artificial intelligence data services company’s shares are down 2.5% to $6.24.

Why is the Appen share price falling?

Investors have been selling down the Appen share price on Monday amid weakness in the tech sector and news that the company’s shares will be booted out of the ASX 200 index at the next rebalance.

In respect to the latter, Appen is one of five companies that S&P Dow Jones Indices will remove from the benchmark index when it rebalances on 20 June.

Also being kicked out are metal detector company Codan Limited (ASX: CDA), fund manager Platinum Asset Management Ltd (ASX: PTM), medical device company PolyNovo Ltd (ASX: PNV), and payments company Tyro Payments Ltd (ASX: TYR). All of these shares are tumbling lower today along with Appen.

They will be replaced with artificial intelligence technology hopeful Brainchip Holdings Ltd (ASX: BRN), lithium developers Core Lithium Ltd (ASX: CXO) and Lake Resources N.L. (ASX: LKE), and coal miner New Hope Corporation Limited (ASX: NHC).

As you might have noticed, that’s five exits and only four additions. That’s because the ASX 200 has been home to 201 shares since Tabcorp Holdings Limited (ASX: TAH) demerged its Lottery Corporation Ltd (ASX: TLC) business. Both will remain in the ASX 200 index.

Why is this bad news for the shares been kicked out?

When companies are removed from the ASX 200 index, it means that index funds that track the ASX 200 will have to sell their shares and buy the shares of those being added.

In addition, some fund managers have strict investment mandates allowing them to only buy shares from certain indices. That would mean they would soon have to offload these shares in order to abide by their mandates.

Combined, this can add significant pressure to the sell side. Particularly when buyers are already few and far between for some of the outgoing ASX 200 shares.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Appen Ltd, POLYNOVO FPO, and Tyro Payments. The Motley Fool Australia has recommended Tyro Payments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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