Next Month's KOSPI 200 and KOSDAQ 150 Constituents Change...Focus on Free Float Ratio

[Asia Economy Reporter Ji Yeon-jin] With the regular changes in the constituent stocks of KOSPI200 and KOSDAQ150 next month, along with adjustments to the free float ratios of existing stocks, there are concerns that investors need to prepare for the rebalancing shock.

According to a report published by Samsung Securities on the 22nd, SK Bioscience and SK IET (SK IET) are expected to be included in the KOSPI200 constituent stocks through special inclusion. SK Bioscience has already met the special inclusion conditions, and SK IET can meet the special inclusion conditions if it maintains a market capitalization ranking within the top 50 of common stocks in the KOSPI market by the 1st of next month after its listing on the 11th of this month.

Based on market capitalization of listed stocks, SK Bioscience has reached 12.2 trillion KRW, and SK IET 10.2 trillion KRW this month, making them mega-cap stocks ranked around 40th in the KOSPI market capitalization rankings.

However, since KOSPI200 is calculated based on free float market capitalization, the actual reflected market capitalization depends on the free float ratio, which means only a portion of the total market capitalization of listed stocks is considered. The free float ratios of these two stocks determine their inclusion weights in KOSPI200 tracking ETFs and index funds.

Free float refers to the shares of a company that are actually tradable in the market, excluding shares held by major shareholders or those with trading restrictions. The free float ratio changes due to factors such as acquisition and disposal of treasury stocks, changes in major shareholder stakes through on- or off-market transactions, changes in major shareholder stakes due to paid or unpaid capital increases, changes in major shareholder ratios due to stock conversions of convertible bonds (CBs), and the release of lock-up shares.

The free float ratios of stocks expected to be included in KOSPI200 in June, including SK Bioscience, are only about 20% due to high major shareholder stakes and lock-up shares. The free float market capitalization of newly included stocks is estimated at about 8.3 trillion KRW, while that of stocks expected to be excluded is estimated at about 2.3 trillion KRW.

Among existing KOSPI200 stocks, the free float ratio changes due to major shareholder stake changes, treasury stock acquisition/disposal, and expiration of lock-up periods. Stocks such as POSCO, Shinhan Financial Group, and KT are expected to have free float ratio adjustments due to treasury stock changes. Korean Air, Industrial Bank of Korea, and SK Biopharm may have free float ratio adjustments due to changes in major shareholder stakes, and HYBE is expected to see an increase in free float ratio due to the expiration of lock-up shares.

Among KOSDAQ150 stocks, free float ratios of SK Materials and CJ ENM are expected to be adjusted due to treasury stock changes, while Studio Dragon and Soulbrain Holdings may see changes in free float ratios due to major shareholder stake changes. Kakao Games may also see an increase in free float ratio due to the expiration of lock-up shares.

Typically, adjustments to free float ratios have often been perceived only as rebalancing variables for index funds or ETFs rather than as major events compared to regular changes. Compared to the market capitalization changes caused by inclusion and exclusion during regular changes, the market capitalization changes due to free float ratio adjustments are relatively small, which is why they have not been widely used as trading strategies in the market.

However, this time, the adjustment of free float ratios in KOSPI200 constituent stocks is relatively large, with changes in free float market capitalization comparable to the market capitalization changes caused by inclusion and exclusion during regular changes. Shin Seung-jin, a researcher at Samsung Securities, said, "Although the adjustment of free float ratios is a one-time event, it exposes index funds and ETFs to rebalancing shocks, so it is necessary to consider long/short trading of these stocks near the regular change date." He added, "Since adjustments to the free float ratios of some large-cap stocks are expected this time, it is necessary to respond to the rebalancing shock near the regular change date for those stocks."

This content was produced with the assistance of AI translation services.