MSCI review is approaching, watch for Hanjin Kal being removed and Rainbow Robotics being included

Against the backdrop of the continued rise of the KOSPI, with the upcoming May MSCI (Morgan Stanley Capital International) regular review due to be released, attention in the Korean stock market is increasing on which stocks will be newly added to, or removed from, the index.

According to securities industry sources, MSCI will announce the results of the periodic review on May 13, in the morning Korea time. The MSCI index is one of the representative indices used as an operating benchmark by major global institutional investors. If a stock is included in the index, the likelihood of passive fund inflows tracking the index increases; conversely, if it is removed, related funds may flow out, so the market impact can be significant. MSCI adjusts its constituent stocks every year in February, May, August, and November based on factors such as market capitalization and free-float market capitalization (the value of stocks that are actually tradable in the market).

In this May review, the market generally expects that the total number of Korean stocks will not change significantly. Analysts believe that the recent Korean stock market overall has shown strength, and the current constituent stocks have a high proportion of large caps centered on semiconductors, so the likelihood of large-scale reshuffling is low. Instead, the market is more focused on whether certain stocks will be technically removed and the possibility of a few new stocks being added.

At present, the most mentioned candidate for removal is Hanjin KAL. MSCI’s criteria for deciding whether to include or exclude a stock are based on a day within the last 10 trading days of April; during that period, Hanjin KAL’s share price fell from around 117,000 won to 110.3 thousand won. Kim Dong-young, an analyst at Samsung Securities, said that the recent decline in the stock price reduced free-float market capitalization, creating a possibility of technical removal. If removed, it is expected to trigger net foreign selling of about 95 billion won. LG Display and HD Hyundai Marine Solution, newly included in November last year, are also mentioned by some as possible removal candidates, but this is not the mainstream market expectation.

Among the new inclusion candidates, Rainbow Robotics is considered the most likely. The stock has risen from just over 600,000 won on the 17th of last month to around 700,000 won recently, with its market-capitalization standard improving. If another stock is added to the inclusion list, Kiwoom Securities is seen as the next candidate. Lee Kyung-soo, an analyst at Ahn Kyung Securities, pointed out that the inclusion probabilities for Rainbow Robotics and Kiwoom Securities are 70% and 30%, respectively. During the 10 trading days used as the calculation standard, among stocks not yet included, Rainbow Robotics ranked first by market cap for 7 days, while Kiwoom Securities ranked first for 3 days. This trend could continue to keep market expectations for these stocks’ fund flows strong up to just before the announcement, and based on the actual review results, short-term stock price volatility is expected to increase further.