MSCI Korea Index removes four petrochem firms, seven other stocks

MSCI, a global index compiler, said on Wednesday it has removed 11 stocks, including Lotte Chemical Corp., from its Korea index without any additions. Analysts warn the rebalancing could trigger outflows of 1.1 trillion won ($757 million) in passive funds from South Korean stocks.

In a regular review of stocks included in the MSCI Korea Index, it crossed out Lotte Chemical, Enchem Co., GS Holdings Co., Hanmi Pharmaceutical Co., Kumho Petrochemical Co., battery material supplier L&F Co., LG Chem Ltd.'s preferred stock, game developer Netmarble Corp. and SK Bioscience Co., as well as two engineering companies: POSCO DX Co. and Samsung E&A Co.

Of the 11 stocks excluded, four are petrochemical companies reeling from oversupply and price competition with Chinese rivals.

The number of stocks in the index’s basket decreased to 81 from 92. Shinhan Securities estimated that this will reduce the weight of South Korean stocks in the MSCI Emerging Markets Index to 9.19% from the current 9.35%.

Company name	Estimated outflows following the MSCI Korea Index's rebalancing (in billion won)
Samsung E&A	164.0
L&F	114.0
GS Holdings	102.0
Hanmi Pharmaceutical	94.0
Kumho Petrochemical	94.0
Enchem	89.0
(Source: Eugene Investment & Securities)

MSCI indices serve as benchmarks for global investment funds. The index producer rebalances its indices’ stock baskets based on the market capitalization of a company’s outstanding shares and its floating share capitalization.

The revised MSCI Korea Index will be published on March 3 after the rebalancing is completed on Feb. 28.

Compared with the eight other removed stocks, analysts warn that LG Chem’s preferred stock, Netmarble and GS would face heavy fund outflows relative to their daily trading value.

This may cause high volatility in the stocks on their first trading day after their exclusion from the MSCI index.

Write to Sung-Mi Shim at smshim@hankyung.com

Yeonhee Kim edited this article.