Global stock index provider Morgan Stanley Capital International (MSCI) has commenced its regular index revision process for August. LIG Nex1, Hyosung Heavy Industries, and Doosan, with a market capitalization of around 10 trillion won, are being evaluated as having a high possibility of inclusion.
According to the financial investment industry on the 18th, MSCI conducts regular reviews four times a year (in February, May, August, and November) to adjust the composition and weight of index stocks. Decisions are made based on the market capitalization and free-float market cap of individual stocks on a single day in mid to late this month. The results of the regular review will be released on the morning of August 8, Korean time, and rebalancing will occur on the 28th of the same month.
The key is which stocks will be included in the MSCI Standard (large and mid-cap) index. In the previous regular review in May, Samyang Foods and Hanwha Systems joined, while Ecopro and NCSOFT were removed.
Based on a market capitalization of 7.2 trillion won and a free-float market cap of 2.1 trillion won, new inclusion stocks are expected to be sorted out. LIG Nex1 is highlighted as the stock with the highest potential for inclusion. LIG Nex1's stock price has been rising rapidly along with the defense rally, increasing from a market capitalization of 7.05 trillion won at the end of April to 13.816 trillion won based on the previous day's closing price. Its free-float market capitalization has also surpassed 8 trillion won, exceeding the expected inclusion threshold by about four times.
Hyosung Heavy Industries and Doosan are also expected inclusion stocks. Hyosung Heavy Industries increased its market capitalization from 4.564 trillion won at the end of April to 9.865 trillion won amid a boom in power equipment. On the 16th, its market capitalization first surpassed 10 trillion won during trading.
Doosan's market capitalization surged from 5.05 trillion won at the end of April to 9.584 trillion won, fueled by the holding company trend and strong performance in its electronic business group's copper-clad laminates (CCL) business. Although Doosan's stock price has fallen by about 17% compared to its peak at the end of last month, it still has over 30% room above the expected inclusion threshold based on market capitalization.
Additionally, Hyundai E&C, HD Hyundai Mipo, and HD Hyundai Marine Solution are being considered as possible inclusion stocks. Hanwha Investment & Securities researcher Han Si-hwa noted, “In the previous regular review, HD Hyundai Marine Solution did not qualify based on its free-float market cap, but since the global private equity fund (PEF) operator Kohlberg Kravis Roberts (KKR), the second-largest shareholder, partially sold its stake through a block deal last May, the possibility of inclusion has increased.”
On the other hand, the possibility of Kakao Pay's inclusion is decreasing. Kakao Pay was excluded in the regular review last May, but its stock price has surged since last month amid the stablecoin craze, leading to expectations for a turnaround. Kakao Pay's market capitalization based on the previous day's closing price is 7.789 trillion won, meeting the criteria, but due to a low free-floating stock ratio, its return is expected to be difficult.
Stocks expected to drop from the standard index to the small-cap index include LG Innotek and CJ CheilJedang. Both stocks have increased their market capitalization by 200-300 billion won since the last regular review in May, but they face the risk of exclusion as the threshold for constituents of the standard index has risen.
If included in the MSCI Standard Index, passive funding inflows that track this index can be expected. However, there are many cases where stock prices rise beforehand, only to show weakness after inclusion.
According to an analysis by Kang Song-cheol of Eugene Securities, from 2020 until the end of June this year, newly included stocks in the MSCI Standard Index recorded a 24% excess return compared to the KOSPI index from 45 days prior to the announcement until the announcement date. The excess return during the period between the announcement date and inclusion date was 4.4%, but after inclusion, 30 days later, it showed an excess loss rate of 0.3%.