February MSCI Regular Review, Numerous Additions and Deletions

With the upcoming regular revision of the Morgan Stanley Capital International (MSCI) index next month, attention is focused on newly included and excluded stocks. Due to the domestic stock market's sluggish performance in the second half of last year, the securities industry expects more than 10 stocks to be excluded in this February revision. On the other hand, there are no stocks meeting the inclusion criteria, with only HD Hyundai Mipo and Samyang Foods being considered as candidates.

According to the financial investment industry on the 23rd, the MSCI regular revision results will be announced on the 12th of next month. To prepare for this, the selection process will be conducted based on arbitrarily designated trading days among 10 trading days from the 20th of this month to the end of the month. The regular revision will take place on February 28, and the changes will be applied to the index starting March 3.

Many stocks are expected to be excluded in this revision. Securities firms forecast that between a minimum of 9 and a maximum of 12 stocks will be removed. Samsung E&A, L&F, Enchem, GS, Kumho Petrochemical, Hanmi Pharmaceutical, Netmarble, SK Bioscience, LG Chem Preferred, Lotte Chemical, POSCO DX, and EcoPro BM are among the stocks expected to be excluded.

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Jomin Kyu, a researcher at Shinhan Investment Corp., said, "Due to the domestic stock market's underperformance compared to developed countries, there are no stocks meeting the inclusion criteria, but many stocks will be excluded." He listed 11 stocks expected to be excluded: Samsung E&A, L&F, Enchem, GS, Kumho Petrochemical, Hanmi Pharmaceutical, Netmarble, SK Bioscience, LG Chem Preferred, Lotte Chemical, and POSCO DX.

Yuanta Securities expects 9 to 10 stocks to be excluded, with a worst-case scenario of up to 12. Kyungbeom Ko, a researcher at Yuanta Securities, explained, "The forecast for the highest number of exclusions in history is based on a conservative cutoff point, but it is reasonable to approach the exclusion range broadly." He added, "POSCO DX, Kumho Petrochemical, Lotte Chemical, and SK Bioscience are highly likely to be excluded, as they are the stocks with the highest exclusion probability based on market capitalization and free-float market capitalization criteria." He also viewed the exclusion possibility of L&F, Enchem, Samsung E&A, Hanmi Pharmaceutical, and LG Chem Preferred as high. Ko noted, "Exclusion of preferred stocks is uncommon, which indicates the sluggishness of the domestic stock market." Additionally, GS, CJ CheilJedang, and LG Innotek were given a 'mid' exclusion possibility, while EcoPro BM and Netmarble were considered to have a low exclusion possibility.

Hanwha Investment & Securities predicted the exclusion of 12 stocks. Han Si-hwa, a researcher at Hanwha Investment & Securities, said, "In this regular revision, the number of constituent stocks in the MSCI Korea index will sharply decrease from the existing 92 to 80." He explained, "This is because the relative underperformance of the Korean stock market compared to the global stock market continues. The lower the dollar-based return ranking of the Korean index within MSCI emerging markets, the more stocks tend to be excluded compared to those included. As of the review date for the November revision last year, Korea's dollar-based return was -10.8%, ranking 19th out of 24 emerging countries." He added, "Among the stocks expected to be excluded, LG Chem Preferred, Netmarble, SK Bioscience, and EcoPro BM did not meet the free-float market capitalization requirements, and the market capitalization of other stocks decreased compared to the previous revision, lowering their inclusion priority." He further noted, "The impact of passive outflows is expected to be greatest for LG Chem Preferred, Netmarble, and GS, which have large outflow amounts relative to trading volume, and investors should be cautious of increased price volatility on the day of the revision."

Unlike the many stocks expected to be excluded, there are no stocks with a high likelihood of inclusion, as none meet the inclusion criteria. Candidates considered for inclusion include HD Hyundai Mipo, Samyang Foods, Rainbow Robotics, Hanwha Systems, and Doosan, but their stock prices need to rise significantly within the period to meet the criteria. According to Shinhan Investment Corp., as of the 21st, the required price increase rates for inclusion are 17.7% for HD Hyundai Mipo, 22.1% for Samyang Foods, 31.9% for Rainbow Robotics, 35.5% for Hanwha Systems, and 36.3% for Doosan.

Even if inclusion fails this time, there is an opinion that investment strategies should consider the possibility of inclusion in the May regular revision. Kyungsoo Lee, a researcher at Hana Securities, said, "Recently, expectations for MSCI inclusions and exclusions have been strengthening and accelerating, so companies that fail to be included in February should not be disappointed but rather adopt a strategy to defer expectations to May."

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