November MSCI Regular Review... Notable Candidates for Inclusion

Screening will be conducted from the 18th until the end of this month... Results announced on the 15th of next month
High possibility of inclusion for Geumyang and POSCO DX... SK Telecom expected to be re-included
Analysis suggests stock price increase effect from inclusion is weaker than before
Netmarble, Kakao Games, Lotte Energy Materials, Pan Ocean, etc. expected to be excluded

With the regular November changes to the Morgan Stanley Capital International (MSCI) index approaching next month, attention is focused on the newly included and excluded stocks. While there is anticipation of global capital inflow for newly included stocks, some analyses suggest that the price increase effect from inclusion is not as strong as before.

According to the financial investment industry on the 19th, the MSCI review for the November regular changes is underway from the 18th of this month until the end of the month. During this period, MSCI arbitrarily designates a reference date to select the changed stocks. The selection results will be announced on December 15. The stock replacement will be conducted based on the closing price on November 30, and the changes will take effect from December 1.

Securities firms see a high possibility of Kumyang and POSCO DX being included in this regular change. Both stocks failed to be included in the August regular change but are expected to enter this time. Kyungbeom Ko, a researcher at Yuanta Securities, said, "We see a high possibility of Kumyang and POSCO DX being included. Kumyang failed inclusion in the August regular change due to extreme price increase regulations, but inclusion is likely this time. POSCO DX did not meet the inclusion criteria on the review reference date then, but there should be no disqualifying reasons this time."

SK Telecom is also expected to be re-included. Jaerim Lee, a researcher at Shinhan Investment Corp., explained, "MSCI monitors the foreign investor additional investment capacity ratio only for stocks with foreign investment restrictions. SK Telecom was excluded from the index in the review last August because the additional investment capacity ratio fell below the benchmark. The foreign ownership ratio, which was as high as 48%, recently dropped to 41.36%, increasing the additional investment capacity ratio and meeting the index inclusion criteria, so re-inclusion is expected."

Hyundai AutoEver is also considered a candidate for inclusion, but the possibility is not high. Researcher Kyungbeom Ko explained, "In the case of Hyundai AutoEver, the market capitalization level exceeds the inclusion criteria, but the free-float market capitalization requirement is not met, making inclusion difficult."

Stocks expected to be excluded include Netmarble, Kakao Games, Lotte Energy Materials, Pan Ocean, and BGF Retail.

For stocks expected to be included, there tends to be a price increase due to expectations of foreign capital inflow, so investment strategies aligned with this are likely necessary. Aran Nam, a researcher at Daol Investment & Securities, said, "MSCI included stocks tend to rise on average from the announcement of the review results until rebalancing, while excluded stocks tend to decline before the announcement and fall further after the announcement."

However, recently, as trading based on prior predictions has become active, the price increase formula after the announcement is becoming less effective. Researcher Jaerim Lee said, "In the past, included stocks experienced price increases due to passive and active fund inflows after the announcement date, but recently, the proportion of stocks underperforming the KOSPI has increased. This is because information accessibility has improved and index strategies have become more popular, leading to active front-running targeting these stocks."

According to Shinhan Investment Corp., an analysis of the trading intensity of included stocks in 2021 and 2023 shows that trading timing has become earlier. The MSCI index determines stock inclusion and exclusion based on market capitalization on the review reference date, which is arbitrarily set as one day within the 10 trading days of the review period. Researcher Jaerim Lee explained, "In the past, investors tended to trade after confirming stocks on the announcement date considering this risk, but recently, the review reference date has been set as the first or second day of the review period, reducing uncertainty. The accuracy of inclusion and exclusion predictions has increased, and trading targeting index funds has become active from the review period." He added, "As supply and demand are reflected in advance, the index inclusion factor after the announcement date has not had a significant impact on stock prices."

In the August regular change, EcoPro, which was included in the index, saw its stock price fall 2.49% on the announcement day and then drop 13.81% over the following month. JYP Ent., also included at the same time, rose 1.97% on the announcement day but fell 18.04% over the next month. Kakao Pay (included in February) and KT (included in May), which were included in the MSCI index in February and May respectively, also saw their stock prices fall 0.16% and 2.4% respectively during the month following inclusion.

Accordingly, opinions suggest that the inclusion effect for Kumyang and POSCO DX, which were expected to be included early on, will not be significant. Researcher Kyungbeom Ko said, "As the investor base for MSCI regular changes has expanded, buying responses to index inclusion candidates are becoming faster. Even excluding valuation controversies, Kumyang and POSCO DX have been mentioned as candidates since the August regular change, so supply and demand effects have been reflected in advance and accumulated over a long period."

Researcher Jaerim Lee also said, "Consensus on index inclusion for both stocks was formed early, and increased trading volume and net foreign buying were observed. This should be kept in mind as a factor that could dilute future supply and demand effects."

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