So far this year, as Samsung Electro-Mechanics' share price has skyrocketed, the cap for major domestic exchange-traded funds (ETF) holding the stock has hit the maximum. Analysts say that if these ETFs move to take profits to adjust their weights, more than 500 billion won in sell orders could hit the market this month.
According to the financial investment industry on the 16th, more than 500 billion won in sell orders from Samsung Electro-Mechanics alone are expected to pour out from three domestic equity ETFs with market capitalizations of more than 1 trillion won. The stock's sharp surge in a short period pushed its ETF weight well above the legal cap (30%) and the in-house index limits (20–25%).
◇ ETF weight limits exceeded across the board as shares jump tenfold
Samsung Electro-Mechanics' share price, which was stuck in the 200,000-won range in January, has soared to 2 million won this month, lifting the price level tenfold. As the stock spiked, its weight jumped sharply in equity ETFs that include Samsung Electro-Mechanics.
Among domestic listed ETFs, representative products that have reached saturation in Samsung Electro-Mechanics weights include ▲ RISE Network Infrastructure ▲ HANARO Fn K-Semiconductor ▲ KODEX AI Semiconductor TOP2 Plus. In particular, as of the 12th, Samsung Electro-Mechanics accounted for 31.79% of the 4.82 trillion won "HANARO Fn K-Semiconductor" ETF.
In the 3.998 trillion won "KODEX AI Semiconductor TOP2 Plus" ETF, Samsung Electro-Mechanics' weight has exceeded 35.10%. The per-constituent in-house weight cap for the two ETFs is 25%. The 1.14 trillion won RISE Network Infrastructure ETF also had Samsung Electro-Mechanics at 29.48%, above its in-house cap (20%).
According to the Korea Exchange (KRX) information data system, ahead of the regular rebalancing on the 15th, KODEX AI Semiconductor TOP2 Plus and RISE Network Infrastructure reduced Samsung Electro-Mechanics' weight by about 5% and about 10%, respectively, on the prior trading day, the 12th.
The two ETFs are large products with market caps of 4 trillion won and 1.14 trillion won, respectively. On the 12th alone, the amounts of Samsung Electro-Mechanics sold by the two ETFs totaled 314 billion won—200 billion won and 114 billion won, respectively.
As large ETFs moved to adjust weights, Samsung Electro-Mechanics' share price was affected. On the 12th, when the KOSPI jumped more than 4% from the previous trading day and most large caps rose, Samsung Electro-Mechanics fell more than 5%.
For the HANARO Fn K-Semiconductor ETF, rebalancing is set for the 17th this month. However, after conducting some proactive rebalancing, Samsung Electro-Mechanics' weight had been cut to around 24% as of the market close that day.
Among ETFs under 1 trillion won in market cap, "ACE Korea AI Tech Core Industry" and "IBK K-AI Semiconductor Core Tech" have completed rebalancing of Samsung Electro-Mechanics, while only "HANARO Fn K-Metaverse MZ" remains above 30%, requiring rebalancing.
◇ Growing supply overhang… Cutting weights in "flagship" semiconductor ETFs
Amid recent concentration in the stock market, it is common for specific stocks' weights to exceed benchmarks in ETFs.
Jeon Gyun, an executive director at Samsung Securities, said, "With Korea's overall ETF market exceeding 500 trillion won, domestic equity ETFs account for 250 trillion won," and noted, "If a specific stock exceeds the ETF inclusion cap, you have to reduce that stock's weight through rebalancing and increase others accordingly." Jeon added, "Stocks such as Samsung Electro-Mechanics that have surpassed ETF weight limits may face temporary selling pressure."
Kim Jun-young, a researcher at iM Securities, said, "Market concentration is affecting ETF rebalancing as well," and noted, "Under ETF index rules, if a single stock's weight exceeds the cap, the weight must be cut, and Samsung Electro-Mechanics, SK hynix, and LS Electric appear to have been heavily affected by rebalancing recently."
In the securities industry, some expect that once ETF rebalancing is completed, stocks that dipped temporarily could regain upward momentum.
Kim said, "Once rebalancing is done, individual stocks will move on their own issues again," and explained, "If there is no problem with a stock's earnings fundamentals, it is hard to say the trend has broken just because rebalancing happened." Kim added, "After rebalancing is completed, passive inflows are likely, which could positively affect share prices."