MSCI Inclusion Review Approaching in a Month: KT Likely to Join, GC Green Cross and Alteogen Expected to Be Excluded

[Image source=Reuters Yonhap News]

[Asia Economy, reporter Lee Myunghwan] Ahead of the Morgan Stanley Capital International (MSCI) index semi-annual review scheduled for mid-next month, securities analysts are predicting a high likelihood that KT will be newly included in the index. GC Green Cross and Alteogen have been identified as stocks with a high probability of being excluded.

According to the securities industry on April 2, Samsung Securities released its outlook for the MSCI May semi-annual review and made these statements. The MSCI index, published by Morgan Stanley in the United States, is a globally recognized stock index and serves as a key benchmark for international financial funds.

KT has been pointed out as the stock with the highest potential for new inclusion. KT was excluded from the MSCI index in 2019 after the removal of its overseas Depositary Receipts (DRs). However, in January of this year, a block deal (off-hours bulk trade) involving shares held by NTT Docomo, KT's second-largest shareholder and a Japanese telecommunications company, reduced the foreign ownership ratio from the 45% range to around 40%. Nevertheless, Samsung Securities noted that if the foreign ownership ratio rises again, there remains a small possibility that KT's inclusion in the index could be canceled.

Samsung Securities believes it will be difficult for Kakao Pay-the company with the largest market capitalization among stocks not yet included in the MSCI index-to be newly added. This is due to its low free float ratio and free float market capitalization. Samsung Securities pointed out that Kakao Pay's actual free float ratio is only 12%, mainly because its largest shareholder is a strategic investor.

GC Green Cross, Alteogen, and SK Chemicals were suggested as likely candidates for exclusion. These stocks are expected to be pushed out as a result of other stocks being added. The MSCI index removes stocks with the smallest market capitalization at the time of the arbitrarily determined price reference date. According to Samsung Securities' analysis as of March 31, GC Green Cross (KRW 2.4 trillion), Alteogen (KRW 2.4 trillion), SK Chemicals (KRW 2.5 trillion), Seegene (KRW 2.7 trillion), and Cheil Worldwide (KRW 2.7 trillion) are among the lowest in market capitalization within the index. Kim Dongyoung, a researcher at Samsung Securities, analyzed, "Since the fundamental (basic strength) scores of these stocks are generally not strong, it may be advisable to adopt a strategy of reducing their weightings."

Kim added, "This May semi-annual review is characterized by a smaller number of inclusions and exclusions compared to usual, which means that there have not been significant changes in the market capitalization rankings of stocks recently. When there are few changes in the stocks included in the index, it is essential to consider the fundamentals of each stock, rather than simply applying an inclusion or exclusion strategy."