Hyundai Heavy likely to be added to MSCI Korea index

Hyundai Heavy Industries Co., the world's largest shipbuilder, is the strongest candidate to be included in the MSCI Korea Index next week as part of its index reshuffling, according to South Korean analysts on Thursday.

A surge in its share price between March and April satisfied the requirements for the shipbuilder's free float market capitalization, or the total value of shares readily available for trading in the market, analysts said.

Samsung Securities Co., NH Investment & Securities Co. and Eugene Investment & Securities Co. all picked Hyundai Heavy as the most likely candidate for a new addition to the global index.

The shipbuilder's free float has expanded to 16.34% upon the expiration of its IPO lock-up in December of last year. When it made a trading debut on the Kospi last September, its free float rate stood at 9.6%.

Buoyant shipbuilding orders have propelled its share price to a record high of 161,500 won ($127) in late April, boosting its free float market cap to 11.9 trillion won as of Friday's market close.

To qualify for the MSCI Korea Index, the stock's free float market cap should reach 1.5 trillion won or more.

"Hyundai Heavy Industries is the only one that meets both criteria of market cap and free-float market cap," said Yuanta Securities analyst Koh Kyoung-beom, in reference to Korean candidates for new additions to the MSCI stock index.

"There seems to be no difficulty for Hyundai Heavy to be included in the MSCI Korea Index this time," Samsung Securities analyst Kim Dong-young noted.

Global index provider Morgan Stanley Capital International (MSCI) conducts biannual portfolio rebalancing for its stock indexes in May and November each year.

That leads to portfolio reshuffling by global passive funds that track market indices, including exchange-traded funds.

On May 12 of last year, the country's largest container line HMM Co. became a new addition to the MSCI Korea Index, whereas Hyundai Merchant Marine Co. and Samsung Card Co. were delisted.

On that day, shares of HMM soared 7.12%, while Hyundai Merchant and Samsung Card each slid by more than 5%.

CANDIDATES FOR DELISTING

On the contrary, the country's top mobile carrier SK Telecom Co. is likely to be removed from the index due to its relatively high foreign ownership. Under the current laws, foreign ownership of South Korean telecom stocks is capped at 49% of the company's outstanding shares.

Because of the foreign shareholding limits, telecom provider KT Corp. is also unlikely to make it to the MSCI Korea Index, analysts said. 

Three pharmaceutical companies -- Seegene Inc., Green Cross Corp. and Alteogen Inc. -- were also picked as candidates to be delisted from the global index. Their stock price falls pulled their market value below the minimum market cap requirements for MSCI index constituents, according to the analysts.

Write to Tae-Ung Bae at btu104@hankyung.com
Yeonhee Kim edited this article