Looking at the Stocks Expected to Join the Value-Up Index in the Market

Korea Exchange Value-Up Index Scheduled for Announcement This Month
Brokerage Firms Suggest Expected Inclusion Stocks
Financial and Automotive Sectors with Active Shareholder Returns Likely to Be Included

As the Korea Exchange is scheduled to announce the Value-Up Index this month, securities firms are also releasing forecasts for the stocks likely to be included. Given that it is a Value-Up Index, financial and automotive stocks, which excel in shareholder returns, are considered strong candidates for inclusion.

According to the financial investment industry on the 4th, the Korea Exchange plans to announce the 'Korea Value-Up Index' within this month, and discussions about the Korea Value-Up Index continued at the 7th Corporate Value-Up Advisory Group meeting held on the 2nd. The advisory group suggested that stocks should be included in a balanced manner across sectors and that differentiation from existing representative indices is necessary to expand institutional investor participation and create new investment demand.

The Exchange recently completed the development of the Value-Up Index and plans to finalize the announcement after testing, collecting external expert opinions, and making adjustments this month. It is known that there will be multiple indices rather than a single one.

Kyungbeom Ko, a researcher at Yuanta Securities, said, "It is known that the Value-Up Index will be divided into an 'Excellent Companies Index' and a 'Promising Companies Index,' which I think is particularly noteworthy." He added, "As shareholder returns are emphasized to resolve the Korea discount, the Excellent Companies Index is expected to measure shareholder return rates, while the Promising Companies Index will adopt rules such as return on equity (ROE) and price-to-book ratio (PBR), similar to the JPX Prime 150 Index of the Japan Exchange, which the Korea Exchange benchmarks."

The Excellent Companies Index is expected to measure shareholder return rates, so dividend yield is anticipated to be reviewed as a basic factor. Researcher Ko analyzed, "Considering the recent increase in quarterly dividends, the most recent quarterly dividend may be immediately reflected, but domestic stocks still tend to have a high proportion of year-end dividends. From the perspective of rebalancing index-based products such as exchange-traded funds (ETFs), the relevant period is likely to be the most recent four quarters."

Share repurchases and cancellations, which are also increasing, are expected to be reflected in the measurement of shareholder return rates. Researcher Ko said, "There are limitations in thoroughly screening all listed companies for existing treasury stock cancellations or cancellations after repurchase," and predicted, "The maximum value of treasury stock repurchase and cancellation ratios will be selected and evaluated equally with dividend yield."

Yuanta Securities identified stocks expected to be included in the Excellent Companies Index, considering dividend yield, treasury stock repurchase rate, and cancellation rate, including Hyundai Motor, Celltrion, KB Financial Group, Kia, Shinhan Financial Group, POSCO Holdings, Hana Financial Group, Samsung C&T, Hyundai Mobis, Samsung Fire & Marine Insurance, Woori Financial Group, KT&G, Samsung Life Insurance, HMM, and Meritz Financial Group.

The Promising Companies Index is expected to adopt rules similar to the JPX Prime 150 Index. Researcher Ko said, "The JPX Prime 150 Index selects stocks with ROE above 8% and PBR below 1," adding, "In the domestic market, if the ROE level is about 5% or higher, the number of constituent stocks is estimated to be around 50." Stocks expected to be included in the Promising Companies Index, considering ROE conditions, include Hyundai Motor, Kia, Samsung C&T, LG Electronics, KB Financial Group, HMM, Samsung Life Insurance, SK Telecom, KT, Hana Financial Group, Korean Air, Hyundai Mobis, Shinhan Financial Group, Hyundai Glovis, and S-Oil.

IBK Investment & Securities presented stocks with high inclusion potential by sector. In the energy sector, HD Hyundai is evaluated as having a very high likelihood of inclusion, while in materials, Korea Zinc, Kumho Petrochemical, and Poongsan are expected to have very high inclusion potential. In industrials, Hyundai Glovis, Hyundai Elevator, LG, and CJ were identified as stocks with very high inclusion potential. Jongyoung Kim, a researcher at IBK Investment & Securities, explained, "Industrials is a sector with many cyclical companies, and we prefer companies that consistently generate profits and implement shareholder return policies over those with low profit stability. Although holding companies have insufficient shareholder returns, if they formalize shareholder return policies, there is significant upside potential."

In the cyclical consumer goods sector, Hyundai Motor and Kia are analyzed to have very high inclusion potential, while KT&G is highly likely in the essential consumer goods sector. In finance, Meritz Financial Group, KB Financial Group, Hana Financial Group, Samsung Life Insurance, DB Insurance, Kiwoom Securities, NH Investment & Securities, and Mirae Asset Securities are expected to have very high inclusion potential. Researcher Kim said, "Most financial companies are executing or reviewing shareholder return policies, so the Value-Up Index is expected to include the most stocks from this sector," adding, "The higher the market capitalization, the higher the inclusion ratio is likely to be."

In IT, Samsung Electronics, LG Electronics, and Hanmi Semiconductor were identified as stocks with very high inclusion potential. Researcher Kim explained, "IT is a sector with low profit stability and insufficient shareholder returns," adding, "Hanmi Semiconductor, which recently started shareholder returns along with profitability improvement, and Samsung Electronics, from the perspective of dividend stability, are expected to be included."