LG Energy: Will joining indices rescue stock from its plunge?

 

LG Energy Solution Ltd., the world’s No. 2 battery maker, will gain quick entry to two MSCI indices in mid-February as well as join Korea’s secondary battery industry index thereafter. Entering the indices is expected to bring an influx of passive funds up to 1 trillion won ($825.4 million), accelerating supply and demand on the battery maker’s shares.

KOSPI AFFECTED BY LG ENERGY'S PLUNGE

LG Energy shares fell 10.89% to close at 450,000 won on Jan. 28. The stock price plummeted 15.4% to 505,000 won on Jan. 27., its first day on the public market. Foreign massive selling pushed the price down, foreigners dumping 1.5 trillion won worth of shares just on Thursday. 

The stock’s dive has cast a shadow on the main Kospi bourse. The Kospi rose 1.87% to 2663.34 on Friday, after plummeting for the past five days in a row. The increase was small given the top market cap Samsung Electronics Co.'s 2.81% and the third-largest cap SK Hynix Inc.'s 6.17% on the same day. Analysts say the plunge of LG Energy, currently the second-largest market cap, has affected the rise of the Kospi.

The Kospi 200 Index, the market-cap-weighted index of 200 domestic stocks, went up 2.7% on Friday. “LG Energy has not joined the Kospi 200 yet. Given the Kospi 200’s bigger rise than Kospi’s 1.87% up, the battery maker is dragging down the main bourse’s increase,” said Park So-yeon, an analyst at Korea’s Shinyoung Securities Co.

The Kospi 200 is expected to add LG Energy in March. By then, the Kospi will be affected by LG Energy’s ups and downs while the Kospi 200 won’t, market watchers said.

JOINING MSCI, AWAITING FOR FTSE APPROVAL

Analysts don't expect LG Energy shares to remain submerged for long given MSCI's inclusion of the stock, which will boost the supply and demand of the shares.

On Thursday, MSCI announced LG Energy’s fast entry in its two indices -the  Emerging Markets Index and All Country World Index. The FTSE, however, said on the day it will discuss whether to include the stock in its index during a quarterly meeting in March. The stock’s free float rate, the float percentage of total shares outstanding, met the MSCI’s standard but failed FTSE’s.

Joining the MSCI indices is expected to draw a massive influx of funds – Korea’s NH Investment & Securities Co. predicts an inflow of 550 billion won while Samsung Securities Co. forecasts 690 billion won.

“The huge influx will take place once the stock market closes on Feb. 14, when the LG Energy stock will join the MSCI,” said Heo Yule, an analyst at NH Investment & Securities. “The FTSE is likely to approve including the stock during the March meeting. After the stock’s initial public offering lock-up period expires, the free float rate will increase to meet FTSE’s standard,” Heo added.

LG Energy stocks are slated to soon join two exchange-traded funds -- Samsung Asset Management Co.'s Kodex Secondary Battery Industry ETF and Mirae Asset Global Investments Co.’s TIGER Secondary Cell ETF. Each ETF operates more than 1 trillion won. The indices the ETFs are tracking will be rebalanced from Feb. 9 to 11. The rebalancing will bring an additional 343.4 billion won to LG Energy, according to NH Investment & Securities.

Write to Sul-Gi Lee at surugi@hankyung.com
Jihyun Kim edited this article.