The December KOSPI 200 regular revision is a week away. With the inclusion and exclusion candidates announced last month, expectations are that volatility in supply and demand will be large as the free-float ratios of individual constituents in the index are adjusted at the same time.
The index constituents and free-float changes will be finalized on the 11th, taking effect on the 12th. The KOSPI 200 is a key domestic index widely used as the underlying for exchange-traded funds (ETF), index funds, and derivatives (such as options). Accordingly, this second-half rebalancing is expected to trigger real fund flows in the market.
Earlier, on the 18th of last month, the KOSPI 200 additions and deletions were announced. Seven stocks will be newly included—ISU Petasys, Hanwha Engine, Sanil Electric, LG CNS, Paradise, Asia Holdings, and Hyundai AutoEver—while eight stocks will be removed—HD Hyundai Mipo, Hanwha Vision, Dentium, HanaTour Co., KG Mobility, TCC Steel, and OCI.
Passive funds tend to move preemptively before index inclusions and exclusions or free-float adjustments are finalized. Therefore, at this point, attention should be paid not only to newly added and removed names but also to changes in the free-float ratios of existing constituents.
According to Yuanta Securities Korea, among KOSPI 200 constituents, the names expected to see an increase in free-float ratio are: ▲ LG Energy Solution (6%·rebalancing demand 88.7 billion won) ▲ Hanwha Ocean (6%·28.4 billion won) ▲ HD Hyndai Marine Solution (16%·20.2 billion won) ▲ Kakao Pay (14%·14.1 billion won) ▲ Dongwon Industries (12%·3.6 billion won) ▲ SK IE Technology (10%·3.6 billion won) ▲ Korea Gas Corporation (KOGAS) (5%·2.8 billion won) ▲ Hanil Cement (6%·1.0 billion won) ▲ LOTTE Wellfood (6%·1.0 billion won).
In contrast, Hyundai Department Store (-7%) and Hanwha Aerospace (-5%) are expected to see outflows of 2.7 billion won and 38.4 billion won, respectively, as their free-float ratios decrease.
Ko Kyung-beom, an analyst at Yuanta Securities Korea, said, "LG Energy Solution saw its major shareholder equity ratio decline due to exchangeable bond (EB) exchange claims and sales, and Hanwha Ocean's free-float ratio will rise due to equity sales by Hanwha Impact Partners." HD Hyndai Marine Solution is also set to see its ratio rise as two block deals (after-hours bulk trades) by global private equity firm KKR are reflected.
The situation at Kakao Pay is somewhat complicated. Kakao Pay's related party, Alipay's Singapore entity, transferred equity to domestic and overseas prime brokerage services (PBS) to hedge EB positions. The transaction is likely to be reflected as a nominal increase in the equity ratio, so the free-float ratio appears set to rise.
Exchange-traded funds (ETF) tracking the KOSPI 200 have 29.6 trillion won in assets under management (AUM). Ko said, "As the stock market rose this year, the size of tracking funds has increased significantly from 19 trillion won at the regular revision in the first half," and added, "This time as well, the supply-demand impact from passive funds could be significant alongside the free-float adjustments."