Lotte Chemical and 11 Other Companies Massively Removed from MSCI... Zero Inclusions

MSCI Korea Index Constituents Reduced from 92 to 81
No New Additions in February Review, Eleven Stocks Removed

Eleven stocks were removed from the Morgan Stanley Capital International (MSCI) Korea Index. There were no newly added stocks.

MSCI, which calculates global stock indices, announced on the 12th that it adjusted the constituent stocks of the Korea Index in its February regular review. The removed stocks are Samsung E&A, L&F, GS, Hanmi Pharm, Kumho Petrochemical, Enchem, Netmarble, SK Bioscience, Lotte Chemical, POSCO DX, and LG Chem Preferred, totaling 11 companies.

Accordingly, the number of stocks included in the MSCI Korea Index decreases from 92 to 81. The rebalancing based on the regular review will take place on the 28th, and the updated MSCI index will be applied starting from the 3rd of next month. Researcher Kang Song-cheol of Eugene Investment & Securities estimated that the weight of Korea within the Emerging Markets (EM) index will decrease by 0.16% after the rebalancing is applied.

The MSCI index is one of the most influential stock indices worldwide and adjusts its constituent stocks quarterly in February, May, August, and November based on market capitalization and free-float market capitalization. Inclusion in the index can lead to inflows of passive (index-tracking) funds, while removal from the index can be disadvantageous from a supply-demand perspective.

In the securities industry, it was anticipated that due to the recent sluggishness of the Korean stock market, multiple stocks would be removed without any new inclusions. Researcher Cho Min-gyu of Shinhan Investment Corp. stated, "The stocks to be removed showed foreign investor outflows and a downward trend in stock prices from 60 trading days before the rebalancing date until the rebalancing day," adding, "Since price fluctuations due to rebalancing are expected, reducing exposure is likely to be effective."

Researcher Han Si-hwa of Hanwha Investment & Securities noted, "The impact of fund outflows is expected to be greatest for LG Chem Preferred (21.7 times), Netmarble (14.3 times), and GS (13.5 times), where the outflow amount relative to trading volume is large," and emphasized, "Investors should be cautious of increased price volatility for these stocks on the rebalancing day, the 28th."

The presence of the Korean stock market in the MSCI index is gradually shrinking. The number of domestic stocks in the MSCI index, which reached 104 in August 2023, decreased to 92 last November, and with this removal, it will shrink further to 81.