Not a single Korean stock appears likely to join the MSCI Korea Index in this year's final review, as the domestic market has slumped in the second half. All potential candidates have cleared the free-float market capitalization requirement but fall short of the total market cap threshold for inclusion.
Seven stocks — GS, Samsung E&A, LS, Jusung Engineering, Isu Petasys, Samsung Securities and Coway — have been identified as potential additions to the MSCI Korea Index in November, according to the financial investment industry on the 30th. On the market cap measure that determines actual inclusion, however, all seven remain below the cutoff. Hana Securities estimated the inclusion cutoff at 13.33 trillion won ($9.5 billion) as of the previous day, leaving the candidates between 22.6% and 46.1% short of that line.
LG Uplus and Yuhan, by contrast, have entered the danger zone for deletion. LG Uplus's free-float market cap came in 47.0% below the estimated deletion threshold, while Yuhan's total market cap fell 9.3% short. HYBE, the entertainment company whose shares have been in a prolonged slump, was also named a deletion candidate, but both its total and free-float market caps currently exceed the thresholds, pointing to it staying in the index.
One variable is that even with no new entrants, the departure of existing members could open up slots, at a time when recent share price declines have shrunk the candidates' size. In that case, stocks meeting the free-float requirement could be added in order of absolute market cap, which analysts say leaves the door open for GS and Jusung Engineering.
MSCI conducts regular reviews in February, May, August and November, and the changes carry meaningful consequences for share prices and fund flows. In the most recent review in August, LG Innotek was added while four stocks — HLB, LG Display, POSCO International and Samsung Epis Holdings — were removed. LG Innotek rose 6.3% between the day before the review announcement and the rebalancing date, while the four deleted stocks fell an average of 7.5% over the same period.
For this review, MSCI will select one of the last 10 trading days of October as the reference date, and the revised index will take effect on Dec. 1 after rebalancing on Nov. 30. "With the market volatility that had been excessive now well below its peak, this is a useful time to use MSCI events as an alpha strategy," said Kim Dong-young, an analyst at Samsung Securities. "Investors need to monitor the share price trends of the relevant stocks through the reference period for the November review's additions and deletions."
