As the sluggishness of the Korean stock market continues, following a sharp decline in the stock index due to the Dec. 3 martial law situation, it appears that a large-scale exit is likely for the oil and chemical and secondary battery sectors within the constituents of the Morgan Stanley Capital International (MSCI) index.
According to Samsung Securities on Nov. 11, the next regular review by MSCI to adjust its index constituents will be in February 2025. From the 20th to the 31st of next month, stocks will be determined for inclusion or exclusion based on market capitalization. The stocks estimated for inclusion were zero, while nine stocks were estimated for exclusion based on the previous day's stock prices. Research Institute member Kim Dong-young noted, 'This is a result of the prolonged market sluggishness combined with the recent sharp decline in the stock index.'
Kim noted potential exclusion candidates including ▲Lotte Chemical ▲Kumho Petrochemical ▲Enchem ▲POSCO DX ▲Hanmi Pharmaceutical ▲Samsung E&A ▲LNFP ▲SK Bioscience ▲Ecopro. In the case of Lotte Chemical, the stock price has halved this year due to poor performance in the basic petrochemical sector.
The exchange rate is also an issue, as stocks for inclusion and exclusion are selected based on their ranking against the dollar. The exchange rate of the won against the U.S. dollar has risen to the 1,430 won range. Compared to the exchange rate of around 1,380 won during the regular review last November, this represents an increase of approximately 3.6%, indicating that the dollar-denominated market capitalization of Korean stocks has decreased.
Kim stated, 'The future is not yet determined,' and noted, 'If the dollar-denominated market capitalization of the Korean stock market increases again by mid to late next month, the number of stocks likely to be excluded from MSCI could decrease accordingly.'
Kim explained that stocks with a high probability of being included in MSCI currently include Samyang Foods and HD Hyundai Mipo. However, it is estimated that the stock prices of Samyang Foods and HD Hyundai Mipo need to rise by 21% and 25%, respectively, to achieve inclusion.
The MSCI index is considered one of the most influential stock indices in the world. When included in the MSCI index, funds following the index tend to buy, which has a positive impact on stock prices and supply-demand aspects. The MSCI index rebalancing occurs four times a year in February, May, August, and November.