[Beginner's Guide] The Impact of KOSPI 200 Regular Changes on Investors

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jaehee] One of the issues in our stock market last week was the regular revision of the KOSPI 200. Meritz Fire & Marine Insurance, F&F, and K Car were newly included in the KOSPI 200, one of the representative indices of the domestic stock market. Let's find out which stocks were newly included and excluded, and what criteria were used to decide.

Meritz Fire & Marine Insurance and others newly included in KOSPI 200

The Korea Exchange announced on the 24th that it held the Index Management Committee on the 23rd and finalized the regular revision of the KOSPI 200, KOSDAQ 150, and KRX 300 constituent stocks.

Seven stocks were newly included in the KOSPI 200: Hanil Cement, Hana Tour, Iljin Hysolus, K Car, F&F, SD Biosensor, and Meritz Fire & Marine Insurance.

Meanwhile, SK Discovery, Nexen Tire, Cuckoo Holdings, Bukwang Pharmaceutical, Youngjin Pharmaceutical, SNT Motiv, and CJ CGV were excluded.

There were also changes in the KOSDAQ 150. A total of 12 stocks were replaced, with Danal, Bident, Nexon Games, and Golfzon entering, while Enzychem Lifesciences, Cellid, Webzen, and M2N were removed.

In the KRX 300, 19 stocks including SK Gas, Lotte Rental, Megastudy Education, Golfzon, and Iljin Hysolus were added, while 18 stocks such as SK Networks, Kyungdong Navien, and LX Hausys were excluded.

What are KOSPI 200 and KOSDAQ 150?

As we looked at the newly included and excluded stocks earlier, you might have come across terms like KOSPI 200 and KOSDAQ 150. While you may have heard of KOSPI and KOSDAQ, KOSPI 200 and KOSDAQ 150 might feel unfamiliar.

There are over 2,200 companies listed on the domestic stock market. Among them, 350 companies represent the market. The KOSPI and KOSDAQ indices cover all listed companies, but the KOSPI 200 and KOSDAQ 150 indices consist of only 200 and 150 companies, respectively.

What criteria are used for selection and when does it happen?

So, what criteria are used to select companies included in the KOSPI 200 and KOSDAQ 150? It is 'market capitalization.' Companies are selected for inclusion or exclusion based on the average market capitalization ranking over a specific period.

The KOSPI 200 and KOSDAQ 150 indices are rebalanced twice a year. Changes are usually made based on the closing prices on the simultaneous expiration date of futures and options in June and December.

Is inclusion in KOSPI 200 or KOSDAQ 150 good news or bad news?

[Image source=Yonhap News]

As mentioned earlier, the criterion for inclusion and exclusion is 'market capitalization.' So, being included in the index means your market capitalization has increased, which might seem good. Of course, it is generally perceived as positive. Inclusion in the index attracts global passive funds that track the index, leading to expectations of a stock price increase. However, on the flip side, it can also become a target for short selling. Currently, financial authorities have partially allowed short selling for KOSPI 200 and KOSDAQ 150 stocks since May last year.

Because of this, there have been cases where the stock prices of KOSPI 200 included stocks fell, while those excluded rose.

LG Energy Solution is a representative example. After its special inclusion in the KOSPI 200 last March, short selling surged, bringing its price close to the 300,000 KRW IPO price.

Choi Jaewon, a researcher at Kiwoom Securities, explained, "Newly included stocks became eligible for short selling after June 10, so stocks with high loan balance ratios and valuation burdens (price relative to earnings) need to be carefully monitored for supply and demand. On the other hand, excluded stocks are restricted from short selling after the regular revision, so some short selling positions may be liquidated before the revision date."

The KOSPI 200 and KOSDAQ 150 are indices representing our stock market. As mentioned, a significant amount of funds track these indices. Since the regular revision of the KOSPI 200 and KOSDAQ 150 twice a year greatly affects stock prices, investors should carefully check whether the stocks they hold are newly included or excluded.

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