No new constituents are expected to be added to the MSCI Korea Index in next month's regular review, market watchers say. The stream of quarterly reshuffles that has continued in recent quarters is likely to halt this time, limiting additional passive fund inflows.
Morgan Stanley Capital International (MSCI) will adjust the constituents of its Korea Index through the May regular review, according to the financial investment industry on the 20th. MSCI determines additions and deletions four times a year — in February, May, August and November — based on market capitalization and free-float market capitalization, with both criteria required for inclusion. MSCI index inclusion typically attracts passive fund inflows and is considered a strong catalyst for individual stocks.
Analysts say additional inclusions in next month's review look unlikely. APR and HD Hyundai Marine Solution were added in November last year, followed by Samsung Epis Holdings and Hyundai Engineering & Construction in February, extending the streak of new additions. This time, however, no candidates are seen as meeting the requirements.
According to Hana Securities, the market cap and free-float market cap cutoffs for this regular review were estimated at 13.064 trillion won ($9.6 billion) and 4.3547 trillion won ($3.2 billion), respectively, as of the 17th of this month. Samchundang Pharm, a leading candidate, has a market cap of 11.3886 trillion won, about 12.8 percent short of the cutoff. The stock once topped the KOSDAQ in market cap on expectations for its drug delivery platform patents, raising inclusion hopes, but its share price has halved since the March 31 announcement of its designation as an unfaithful disclosure entity.
Kiwoom Securities (039490.KQ) also falls about 10.1 percent short of the threshold, with a market cap of 11.7428 trillion won. A leader in the brokerage segment, Kiwoom is considered the top beneficiary among securities stocks in a bull market, but has yet to gain enough momentum to reach the 13 trillion won inclusion line. Samsung Securities (016360.KS), another candidate from the securities sector, has a market cap about 25 percent below the cutoff, making inclusion unlikely.
Most leading candidates met only the free-float market cap standard, supported by ample tradable shares. Free-float market cap is calculated based on shares actually available for trading in the market, excluding holdings of major shareholders and related parties. Hyundai AutoEver, however, had a free-float market cap of about 2.9618 trillion won, failing even that standard.
Conversely, the likely deletion candidates were found to lack sufficient free-float market cap rather than absolute market cap. Hanjin KAL, for example, had a market cap of 7.8112 trillion won, far exceeding the threshold of 5.8062 trillion won, but its free-float market cap of 2.7339 trillion won fell below the 2.9031 trillion won deletion threshold. HD Hyundai Marine Solution (443060.KS), the most recent addition, had a free-float market cap of 2.9656 trillion won, only marginally above the threshold, offering little room for comfort.
"As more refined Foreign Inclusion Factor (FIF) standards are applied, subtle numerical changes can affect inclusion and exclusion decisions," said Kim Dong-young, an analyst at Samsung Securities. "For stocks close to the threshold, forecasting uncertainty could widen."
