Shinhan "NCSoft and EcoProMety Expected to Be Excluded in May MSCI Changes"

Shinhan Investment Corp. expects that two stocks, Samyang Foods and Hanwha Systems, will be included in the MSCI (Morgan Stanley Capital International) Korea Index next month, while two stocks, NCSoft and EcoProMety, will be excluded. They also advised investors to pay attention to the candidates for inclusion and exclusion.

Researchers Min-kyu Jo and Dong-gil Noh of Shinhan Investment Corp. stated in their May 16 report titled "May Regular Review, The Speeding Game of Anticipation" that "the MSCI Korea Index market capitalization cut-off is estimated to be 4.18 trillion KRW."

They explained, "Since the current market capitalization cut-off has been adjusted to half of the Emerging Markets GMSR (Global Minimum Size Requirement), a reduction in the number of companies is required. NCSoft, which is at the bottom in market capitalization, is expected to be excluded. EcoProMety is expected to be excluded as it falls below the free-float market capitalization criteria."

The MSCI May review is scheduled for May 14, Korean time. The review date will be randomly selected from 10 trading days between April 16 and 30 (excluding Good Friday, April 18). The rebalancing will take place on May 30.

They pointed out that foreign investors have been net sellers of the KOSPI for nine consecutive months, including a net sale of 8.7 trillion KRW in April. They also noted that amid continued foreign net selling, there has been an expansion in foreign non-arbitrage program trading sales. This is explained as passive and quant-driven demand through basket trading rather than index arbitrage trading. They mentioned that the expansion of foreign passive and quant selling is due to passive fund outflows caused by tariff uncertainties and increased spot selling demand following the resumption of short selling, diagnosing that "stock selection is more important than index investment at this stage."

Furthermore, they said, "Despite the resumption of short selling, the event-driven basic strategy using index changes remains the same," adding, "Stocks included (excluded) in the index have shown foreign inflows (outflows) and price increases (decreases) from 60 trading days before rebalancing until the day of rebalancing. Based on this pattern, a long-short strategy between inclusion and exclusion stocks can be considered."

They continued, "Comparing before and after the short selling ban, during periods when short selling was allowed, the volatility of inclusion and exclusion stocks softened from 30 trading days before the rebalancing date," adding, "It is necessary to pay attention not only to the stocks expected to be included or excluded but also to the candidates for inclusion and exclusion." Currently mentioned inclusion candidates are LIG Nex1, Rainbow Robotics, and HD Hyundai Mipo. Stocks positioned in the lower market capitalization range within the MSCI Korea Index and likely to be excluded include LG Innotek, CJ CheilJedang, and SKC.