Rising Trend in January Due to Foreign and Institutional Buying
Stock Price Increase May Be Limited Once Inclusion Is Decided
[Asia Economy Reporter Hwang Yoon-joo] The stock prices of KakaoPay and Hanwha Aerospace have been on the rise since the beginning of the year. Analysts attribute this largely to the influx of net foreign buying driven by expectations of inclusion in the Morgan Stanley Capital International (MSCI) index.
According to the Korea Exchange on the 27th, KakaoPay's stock price rose 22.9% over the past month (January 1?26), from 53,700 KRW to 66,000 KRW. Hanwha Aerospace also increased by 5.4%, from 73,600 KRW to 77,600 KRW.
Foreign buying led the price increases of these stocks. During the same period, foreigners purchased 64.243 billion KRW worth of Hanwha Aerospace shares. For KakaoPay, foreigners and institutions net bought 38.867 billion KRW and 12.223 billion KRW worth of shares, respectively.
The buying momentum for these two stocks is largely due to expectations of MSCI inclusion. There is a high possibility that KakaoPay and Hanwha Aerospace will be included in the MSCI regular review announcement in February. Once newly included in MSCI, funds from global funds and exchange-traded funds (ETFs) that benchmark the MSCI index flow in. Consequently, investors anticipating a price increase buy stocks with strong inclusion expectations in advance.
MSCI selects inclusion and exclusion stocks based on market capitalization and free float market capitalization. KakaoPay has already met the criteria. Hanwha Aerospace’s market capitalization is near the inclusion threshold. The estimated inclusion threshold for Hanwha Aerospace’s market capitalization is about 4.25 trillion KRW, and if the upward trend continues, it is expected to meet the criteria during the review period (January 18?31). Experts explain that due to its high free float ratio, the scale of passive inflows is expected to be larger than that of KakaoPay.
Despite an expected operating loss in the fourth quarter of last year, KakaoPay is still highly anticipated for MSCI inclusion. Heeyeon Lim, a researcher at Shinhan Investment Corp., said, "The main issues are the easing of Chinese big tech regulations and the possibility of MSCI index inclusion," evaluating that the recent stock price rise is mainly influenced by supply and demand factors.
However, some point out that once inclusion is confirmed, the stock price increase may be limited. Jaerim Lee, a researcher at Shinhan Investment Corp., said, "Even on a 60-day cumulative basis, foreign demand for KakaoPay and Hanwha Aerospace has been steadily flowing in," adding, "Since foreign demand has been priced in early, the capacity for additional foreign buying after the announcement may be more limited than expected."
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