65 ETFs Containing Stocks Plunged by SG Securities... Why Can't the 8 Limit-Down Stocks Be Removed?

Exclusion in cases of delisting, designation as a management item, or designation as an investment caution item
Decision criteria also include judgment on whether there is a problem with the stock's sustainability
Removed from Hanwha ETF, which had a 15% weighting including Samchully, Seoul Gas, and Harim Holdings

Following the stock price crash triggered by Soci?t? G?n?rale (SG) Securities, eight stocks consecutively hit their lower price limits, causing significant turbulence in many exchange-traded funds (ETFs) that include these stocks. However, most ETFs containing the problematic stocks are expected to retain them without removal.

According to the financial investment industry on the 8th, as of the end of last month, 65 out of a total of 703 ETFs included at least one of the problematic stocks. This accounts for about one-tenth of all ETFs.

The stocks that plunged to their lower price limits due to a flood of sell orders through SG Securities' window were Daol Investment & Securities, Dow Data, Daesung Holdings, Samchully, Seoul Gas, Seonkwang, Sebang, and Harim Holdings?eight companies in total. These stocks recorded their lower price limits for up to four consecutive trading days, shocking the market. Prosecutorial investigations related to this incident are ongoing, so the situation cannot yet be declared resolved. Market sentiment toward the problematic stocks has become highly cautious.

However, asset management companies unanimously stated that they would not make significant adjustments to ETFs containing these stocks. Generally, ETF products are linked to the movements of specific indices such as the KOSPI 200. Most are passive products that follow a particular index rather than actively selecting stocks.

When deciding whether to exclude a stock from a typical ETF product, situations such as delisting, designation as a management stock, or designation as an investment caution stock must occur. Kim Jeong-hyun, Head of the ETF Business Division at Shinhan Asset Management, said, "For ETFs tracking representative indices of the exchange, the problematic stocks do not meet the exclusion criteria, and since there are no fundamental issues threatening the companies' existence, they continue to follow the direction of the index."

He added, "In the case of thematic indices or customized indices, exclusion decisions can be made through consultations with related institutions using the indices if there is a judgment that the stocks' sustainability is problematic, but we do not currently view the situation that way."

Kim Do-hyung, Head of the ETF Consulting Division at Samsung Asset Management, also said, "If the underlying index decides to exclude the stocks due to the SG Securities issue, ETF products will adjust accordingly, but as of now, we understand that the index providers have no plans to exclude them."

However, there were exceptions. Hanwha Asset Management's 'ARIRANG ESG Excellent Companies ETF' excluded all problematic stocks from the ETF after a drop of more than 10%. This was because the three stocks?Samchully, Seoul Gas, and Harim Holdings?accounted for 15% of the ETF's weight. The exclusion coincided with the regular constituent rebalancing date in April.