[Asia Economy Reporter Song Hwajeong] With the Morgan Stanley Capital International (MSCI) February quarterly review announcement scheduled for the 10th of next month, interest in newly included stocks is growing. Stocks expected to be newly included are Green Cross, Hanmi Science, and Big Hit.
According to Shinhan Financial Investment on the 30th, quarterly reviews generally have high criteria for new stock inclusion or exclusion, resulting in few or no changes. However, this time, due to market rises at the end and beginning of the year, many stocks have increased their market capitalization, so new inclusions are expected.
Shinhan Financial Investment suggested Green Cross, Hanmi Science, SKC, HMM, and Big Hit as stocks expected to be newly included. Among these, the possibility of inclusion for Green Cross and Hanmi Science is viewed as high. Stocks expected to be excluded include Ottogi, Lotte Holdings, Samsung Card, Korea Gas Corporation, and Meritz Securities. Among these, Ottogi and Lotte Holdings are expected to have a high possibility of exclusion.
Particularly, attention is focused on whether Big Hit will be included. Although Big Hit has been listed for three months, it has not been included early in the MSCI index since its initial public offering (IPO), and it is currently not part of the MSCI IMI (Investable Market Index), so it must meet additional requirements unlike other stocks. Researcher Gwak Seonghun of Shinhan Financial Investment explained, "For Big Hit to be included in the MSCI index in the March quarterly review, it must satisfy two market capitalization requirements," adding, "The total market capitalization of the stock must be at least 1.8 times the cutoff market capitalization (4.6 trillion KRW), and the free float market capitalization must be at least 1.8 times half of the cutoff market capitalization (2.3 trillion KRW)."
Big Hit’s total market capitalization is approximately 7.2851 trillion KRW, satisfying the first criterion. The issue lies with the second requirement. Excluding the six-month lock-up volume by institutions from Big Hit’s freely tradable shares, the free float ratio is 26.5%. Researcher Gwak said, "Big Hit’s free float ratio (FIF) is 30% (rounded up to the nearest multiple of 5), and as of the 27th, the free float market capitalization is 2.2 trillion KRW," adding, "Considering the free float market capitalization criterion, the probability of Big Hit’s inclusion in the February quarterly review is low, but since the free float market capitalization criterion for the May semi-annual review (1.3 trillion KRW) is significantly exceeded, the probability of index inclusion in May is high."
Recently, with the rapid rise in stock prices, the weight of Korea within MSCI Emerging Markets has increased, leading to expectations that passive buying demand for newly included stocks will be greater than in the past. Researcher Gwak predicted, "Compared to November last year, the size of MSCI Korea passive tracking funds has increased by about 20%," and "Therefore, for stocks newly included in the MSCI Korea index, the impact of passive buying demand will be greater than before."
If stock replacements occur in the quarterly review on the 10th, they will be reflected in MSCI after the market closes on the 26th of next month.
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