Ahead of the November regular rebalancing of the global stock index compiled by Morgan Stanley Capital International (MSCI), the market is betting on which stocks will be added. New additions tend to rise starting about a month before the announcement of the regular rebalancing, driving strong demand to invest early.
According to the financial investment industry on the 16th, MSCI plans to announce the results of its regular index review on Nov. 6. MSCI adjusts index constituents through four regular reviews each year in February, May, August and November. As one of the most influential stock indexes in global financial markets, inclusion on the index can draw inflows of global passive funds.
MSCI decides additions and deletions based on criteria such as free-float market capitalization, which is derived from market capitalization and the free-float ratio. Considering this, the market sees a high chance that APR and HD Hyndai Marine Solution will be newly added to the Korea index in this regular review.
Kim Dong-young, an analyst at Samsung Securities, said, "HD Hyndai Marine Solution cleared the inclusion hurdle in August, and APR is effectively confirmed for inclusion despite falling short on market capitalization," adding, "If the two stocks are actually included, about 128 billion won and 210 billion won of (passive) flows would come in, respectively."
On the other hand, ORION and LG H&H, which fall short of the expected market capitalization threshold (about 10.5 trillion won), are cited as deletion candidates. However, because MSCI bases market capitalization on the closing price of a day after mid-October, there is room for a turnaround.
Stocks slated for MSCI inclusion tend to rise before the announcement. According to EUGENE INVESTMENT & SECURITIES, from 45 days before the MSCI inclusion announcement to the day of the announcement, the return of the inclusion cohort was 6.4% in 2022, 18% in 2023, and 6.1% in 2024. Since 2020, the average gain over this 45-day period reached 24.5%.
This pattern has continued this year as well. In the August regular MSCI review, the average return of added stocks was 19%. At that time, Hyosung Heavy Industries jumped 48% over the 45 days before the announcement, and Hanwha Systems and Samyang Foods, which were added in the May review, rose 31% and 20%, respectively, over the same period.
Kang Song-cheol, an analyst at EUGENE INVESTMENT & SECURITIES, said, "In the regular reviews in May and August this year, the price gains of newly included stocks far outpaced the index average," adding, "This time as well, the potential for MSCI index inclusion should be considered an additional catalyst for gains."
However, caution is needed because stock prices tend to be weak on the announcement day (review day) and on the actual inclusion date. Newly added stocks fell by around 1% to 3% on average on the day of MSCI's regular review announcement over the past three years.