20160426-三星证券-Kospi_200_reconstitution__Float_and_stock_changes_equally_important_12页_971kb

Kospi 200 Reconstitution Summary

Core Content

The Kospi 200 is a major stock market index in South Korea, reconstituted annually to reflect changes in industry landscapes and company rankings. The reconstitution occurs on the first business day after the June Kospi 200 index futures expiration date. It involves replacing a small number of stocks and adjusting free-float ratios, which are used to determine the market cap weight of each stock in the index.

Main Points

• Number of Stock Changes: This year's reconstitution is expected to involve 10-12 stocks, with 2 services stocks and 8-10 manufacturers being added or removed.
• Liquidity Considerations: If the KRX adheres to liquidity rules, Chosun Refractories and Motonic may be eliminated due to low trading volumes.
• Free-Float Ratio Adjustments: There will be 15 free-float ratio adjustments, including 6 cuts and 9 increases.
• Market Impact: The reconstitution is expected to have limited market impact due to the offsetting nature of the adjustments and the relatively small number of stocks involved.
• Index Fund Rebalancing: Index funds tracking the Kospi 200 are expected to rebalance their portfolios, which could result in KRW4t of demand for added stocks and KRW4t of supply for removed stocks.

Key Information

Reconstitution Projections

Free-Float Ratio Adjustments

Market Impact Analysis

• Total Tracking Funds: Estimated at KRW30t-35t, with a KRW4t demand for added stocks.
• Impact on Large Caps: The addition of new stocks will slightly erode the market cap-based weighting of existing large caps. For example, Samsung Electronics is expected to lose 23bps of its index weight.
• Trading Value and Demand: The demand for shares will be in line with average trading values for most stocks, but for Lotte Confectionery and Hanon Systems, the demand could be four to five times the average, possibly causing supply-demand shocks.
• Stocks Removed: These are expected to face limited selling pressure, as their daily trading values are low and they have small market caps, making them unlikely to be included in the portfolios of large funds.

Summary of Free-Float Adjustments

Notes

• The KRX applies a 10% buffer rule to maintain index stability.
• The free-float ratio is calculated as the percentage of shares not held by large shareholders, related parties, treasury stock, ESOPs, or creditors.
• The free-float ratio adjustments are expected to affect the market cap of the Kospi 200, with a net increase of KRW0.4t.
• The free-float ratio for Cuckoo Electronics is 25%, and for Mando is 70%.
• Hotel Lotte is unlikely to be added to the index due to its recent IPO and the timing of the reconstitution review.

Conclusion

The Kospi 200 reconstitution is expected to have limited market impact, with a small number of stocks being replaced and free-float ratios adjusted. The changes are primarily driven by liquidity issues, share buybacks, and major shareholder activity. While some stocks will see a significant change in their free-float ratios, the overall effect on the index is expected to be minimal, as the demand and supply will largely offset each other. The KRX is advised to consider more frequent adjustments to better reflect changes in the market.