KOSPI 200 Changes Imminent... Should We Preselect Inclusion Stocks?

F&F, Meritz Fire & Marine Insurance, and 4 Other Stocks Expected to Be Included by 4 Securities Firms
Be Cautious of Short Selling When Included

[Asia Economy Reporter Myunghwan Lee] Ahead of this month's regular revision announcement of the KOSPI 200 index, securities firms have analyzed that attention should be paid to newly included stocks. This is because investing before the index inclusion tends to yield higher returns. However, they also advised caution as short selling becomes possible when stocks are newly included in the index.

According to securities firms on the 10th, the Korea Exchange is scheduled to announce the results of the regular revision of the KOSPI 200 constituent stocks at the end of this month. The index revision date is set for the 9th of next month. The KOSPI 200 is an index mainly composed of large-cap stocks and undergoes two regular revisions annually along with occasional revisions based on certain criteria.

As of this date, four securities firms (Samsung Securities, NH Investment & Securities, Kiwoom Securities, Yuanta Securities) that released reports predicting the new inclusions and exclusions of the KOSPI 200 commonly identified six stocks expected to be newly included. They anticipated that F&F, Meritz Fire & Marine Insurance, SD Biosensor, Iljin Hysolus, K Car, and Hanil Cement will be newly included in the index. Conversely, five stocks?Poongsan, Bukwang Pharmaceutical, Cuckoo Holdings, SNT Motiv, and Nexen Tire?are expected to be excluded. Additionally, some securities firms predicted the inclusion of Hana Tour and the exclusion of Youngjin Pharmaceutical, SK Discovery, and CJ CGV.

Securities firms advised that investing in stocks expected to be newly included one month before the regular revision date is effective. Researcher Jeon Gyun from Samsung Securities stated, "When investing in newly included stocks two months before, one month before, and on the official announcement date of the revision, the portfolio of newly included stocks generally showed positive performance," adding, "Investing two months prior exposes the portfolio more to individual stock-specific factors, so investing one month before is considered more effective."

However, it is important to note that short selling becomes possible when stocks are newly included in the KOSPI 200. The financial authorities partially resumed short selling in May last year, limiting it to stocks included in the KOSPI 200 and KOSDAQ 150. LG Energy Solution experienced heavy short selling immediately after its special inclusion in the KOSPI 200 on March 11, resulting in three consecutive trading days of decline and setting new lows.

On the other hand, excluded stocks are removed from the short selling target list, which is expected to relieve them from short selling pressure. If there is a large existing short selling balance, some buybacks are expected to occur before the regular revision date. Researcher Jeon explained, "Since additional short selling cannot be conducted, it is possible that some of the short selling balance will be liquidated just before the regular revision date."

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