The outline of which Korean stocks will be added to or removed from the Morgan Stanley Capital International (MSCI) index is emerging ahead of the August regular review. The market expects LG Innotek to have the highest likelihood of inclusion, while HLB, POSCO International, Samsung Epis Holdings, and LG Display are seen as likely to be removed.
According to the financial investment industry on the 22nd, LG Innotek is the most likely candidate for inclusion in the MSCI August regular review, which will be announced on the 13th of next month. Samsung Securities assessed LG Innotek's likelihood of inclusion at 100 percent, estimating that about 313 billion won in passive funds would flow in if inclusion is confirmed. LG Innotek closed at 647,000 won as of that day, up 29.4 percent from three months earlier, recording a market capitalization of 15.3126 trillion won.
Meanwhile, HLB and LG Display were classified as stocks likely to be removed because their market capitalization failed to meet MSCI standards, while POSCO International and Samsung Epis Holdings failed to meet the standards for free-float market capitalization. MSCI is a representative benchmark index referenced by investors worldwide, conducting regular reviews four times a year in February, May, August, and November. Depending on index inclusion, the scale of inflows and outflows of global passive funds tracking the index is determined.
This regular review draws attention as it is the first regular change to which MSCI's recently revised index calculation rules will be applied. MSCI shortened the period during which inclusion restrictions apply to investment-warning and investment-risk stocks, and also partially eased restrictions on stocks whose prices have surged in a short period (EPI).
The timing for reflecting the American Depositary Receipt (ADR) of SK hynix, which recently listed on the U.S. Nasdaq, is also a point of interest. As the ADR issuance increases new shares by about 2.5 percent of the existing number of outstanding shares, the possibility is raised that SK hynix's weighting within the MSCI Korea index and the Emerging Markets (EM) index could expand.
"If the ADR volume is recognized as free-float shares and the foreign investment limit (FIF) is raised from the current 77.5 percent to 80 percent, the index weighting would increase and the scale of passive fund inflows could also grow," said Kim Dong-young, a researcher at Samsung Securities. "It is more likely to be reflected in the November regular review than in this August regular review."
