MSCI Index Rebalancing in May Linked to 'Gongmaedo'... Which Stocks Are Shaking?

[Asia Economy Reporter Ji Yeon-jin] Morgan Stanley Capital International (MSCI), the world's largest stock market index calculation institution, is drawing attention to the newly included stocks as it reshuffles the index components next month. MSCI calculates indices for countries around the world and the World Index, which are commonly used as investment decision indicators by global investors.

According to the financial investment industry on the 22nd, in the MSCI semi-annual review to be announced on the 11th of next month (local time), three stocks including HMM, HYBE, and SKC are highly likely to be newly included in the Emerging Markets (EM) Standard Index. Hanmi Science and Green Cross were candidates for inclusion but are expected not to meet the market capitalization criteria.

The assets tracking MSCI EM are estimated at $2 trillion (2,238 trillion KRW), with Korea's weighting at 13.6%. Stocks newly included in this index are positive for supply and demand. For example, assuming a passive fund ratio of 20-30%, HMM could expect an inflow of passive funds worth up to 710 billion KRW.

Because of this, stocks that were highly anticipated for inclusion during past regular reviews saw an average increase of 4.8% as supply and demand started flowing in 10 to 15 trading days before the announcement date. Seung-yeon Song, a researcher at Yuanta Securities, said, "For the three stocks HMM, HYBE, and SKC, this is a time to look for trading opportunities for the time being."

On the other hand, in this MSCI semi-annual review, Ottogi, Lotte Holdings, Korea Gas Corporation, Samsung Card, and GS Retail are highly likely to be excluded from the index. This group of stocks has a weighting of around 0.01% within MSCI EM, and a similar scale of capital outflow is expected.

Moreover, this semi-annual review coincides with the resumption of short selling starting from the 3rd of next month. Short selling will be allowed for KOSPI 200 and KOSDAQ 150 stocks, and since all the stocks expected to be excluded are included in KOSPI 200, short selling will be permitted. Dong-gil Noh, a researcher at NH Investment & Securities, said, "Last year, the index effect for excluded stocks was not as clear as for included stocks, but if this can be interpreted as an effect of the short selling ban, then it is necessary to keep in mind the possibility of increased short-term volatility when MSCI excludes stocks this year."