Assets in exchange-traded funds tracking the Korea Exchange's KRX Semiconductor Index have grown more than sevenfold in a year, making this month's scheduled index reshuffle a new factor in supply and demand. Analysts expect mechanical selling centered on SK hynix and Samsung Electronics, whose weightings exceed the index cap, and warn that volatility could rise during the rebalancing as stock market turnover has fallen sharply.
According to the financial investment industry on the 7th, KRX sector indexes reshuffle their components each September just after futures and options expiry, resetting a 20% cap on any single stock to prevent excessive concentration. ETFs tracking those indexes then rebalance their portfolios to match the new weightings. This year, the sheer size of the funds tracking the KRX Semiconductor Index stands out as a variable. As of the 4th, the three ETFs tracking the index — KODEX Semiconductor, KODEX Semiconductor Leverage and TIGER Semiconductor — held combined net assets of 7.676 trillion won ($5.5 billion), more than seven times the 1.054 trillion won a year earlier.
SK hynix (000660) and Samsung Electronics (005930) carry weightings of 36.9% and 23.1% in the KRX Semiconductor Index, both above the 20% cap. Samsung Securities (016360) estimates that trimming each to 20% would generate a combined 1.7 trillion won in selling from the related ETFs. Actual trading volumes could differ depending on how the funds are managed, but the scale of the money tracking the index has clearly changed. SK hynix's weighting was also cut sharply last September, from 29.3% to 21.5%, but the volume the market must absorb this year is far larger, which analysts say could amplify the impact on supply and demand.
The recent slide in domestic trading volume from its peak is another reason to watch the rebalancing flows. Average daily turnover on the KOSPI fell steeply from 50.347 trillion won in June to 36.875 trillion won in July and 25.846 trillion won in August, and has dropped to 20.048 trillion won this month. With liquidity lower than during the period of brisk trading, a concentration of large one-directional orders at a single point in time could heighten sensitivity in individual stocks.
The focus is on trading in the final minutes of the session on the 10th. ETF rebalancing trades will be executed around that day's closing price, the expiry date for September futures and options, with the revised sector indexes taking effect from the 11th. Funds may spread some orders through the session if the volume is too large to handle at once, but if trades cluster near the close to minimize tracking error, volatility could spike just before the market shuts.
Other sector indexes show similar overshoots, with Mirae Asset Securities (006800) at 23.5%, Hyundai Motor (005380) at 25.3%, Shinhan Financial Group (055550) at 23.4% and Hana Financial Group (086790) at 22.1%. Net assets of the ETFs tracking the securities, automobile and banking indexes stand at 686.7 billion won, 384.4 billion won and 305.5 billion won respectively, however, far smaller than the semiconductor products. "This is a one-off flow unrelated to fundamentals, but investors should be mindful of short-term price moves," a securities industry official said.
