Index Idiocy

News that Petropavlovsk (formerly known as Peter Hambro Mining) will be soon be included in the FTSE 100 Index raises a number of questions: Is it proper that a company that is predominately active in countries outside the UK (and the EU) is included in an index that is after all designed to reflect the fortunes of companies active and/or based in the UK? In our opinion there would be a number of indices that would be more appropriate (Russia, Emerging Markets, Mining).
More importantly, the impact on investment behaviour is a serious distortion. A company with a £ 387 million (12/08) turnover but a towering market capitalisation of £ 2,265 million
may be numerically suited to be included in the index but the rationale behind such an index construction is more than questionable. Some analysts already claim that the gold price is in bubble territory and the same may be said of a share that closely follows the gold price. Is this the right time to include it in a prominent index?