[Weekend Money] Why 3 Stocks Were Removed in MSCI's May Regular Review

As a result of the May regular review by Morgan Stanley Capital International (MSCI), Hanjin KAL, HD Hyundai Marine Solution, and SK Biopharmaceuticals have been removed from the MSCI Korea Index constituents, reducing the number of constituents from 80 to 77. It is expected that there will be no significant changes in the number of constituents for the time being.

Previously, on May 12 (local time), MSCI announced the results of its May regular review and made these adjustments to the Korea Index constituents. No stocks were added, and three were removed.

Kim Dongyoung, a researcher at Samsung Securities, said, "The changes turned out to be larger than expected because the impact of the full-scale overhaul of the free-float ratio system was greater than anticipated." He further explained, "The overhaul involved changing the previous method of rounding up the free-float ratio in 5% increments to a new system that rounds up in increments of 2.5%, 0.5%, and 0.1% depending on size. As all stocks had their free-float ratios adjusted, some experienced a significant decrease, leading to their removal from the index."

In the case of HD Hyundai Marine Solution, the free-float ratio was revised from 35% to 30%, which resulted in its removal due to insufficient free-float market capitalization. Kim analyzed, "Given that there have not been significant recent changes in the ownership structure, this appears to be the result of a cumulative effect being reflected all at once."

For SK Biopharmaceuticals, the free-float ratio was changed from 40% to 35%, and it was also removed from the index due to insufficient free-float market capitalization. Kim pointed out, "Currently, SK holds a non-free-float stake of 50.1% in SK Biopharmaceuticals. On March 26, SK significantly reduced its stake from 64% to 50% through a share sale, but it appears that MSCI's free-float ratio assessment did not take this recent change into account."

In the case of Hanjin KAL, there was no change in the free-float ratio; however, it was removed due to insufficient free-float market capitalization.

With three stocks removed and none added this time, the number of constituents has decreased, but this is analyzed as a one-off event. Kim stated, "The removal of these three stocks is a one-time change resulting from the complete overhaul of the free-float ratio system. Going forward, there is a low likelihood of significant changes in the number of constituents. Basically, it is most likely that the number of additions and deletions will be the same, resulting in no net change."

Although the Korean stock market has significantly outperformed global markets over the past year, it is unlikely that the number of constituents will increase. Kim explained, "Due to the characteristics of the MSCI methodology, a country's stock market will see a decrease in the number of index constituents quickly when it underperforms, but an increase in the number of constituents happens very slowly even after prolonged outperformance. Therefore, to reverse the decline in the number of constituents that occurred at the end of 2024 and the beginning of 2025, much stronger and sustained outperformance will be required. For the time being, it will also be difficult to see an increase in the number of constituents."

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