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| MSCI logo / Reuters-Yonhap |
Recent steep surge in stock prices could hamper entry into MSCI index
By Anna J. Park
Ahead of the slated rebalancing of the Morgan Stanley Capital International (MSCI) Korea Index in May, market attention is focused on whether local secondary battery stocks could be added to the indexes and how this may influence their stock prices.
Each index of the MSCI system is reviewed quarterly and rebalanced twice a year. Market experts see three secondary battery companies ― EcoPro, Cosmo AM&T and KYC ― as strong candidates for addition to the MSCI index.
But some watchers think the stocks are unlikely to make the cut this time. The global benchmark operator's internal rules preclude the addition of stocks that have experienced excessively soaring prices in a short-term period. The stock price of EcoPro, for instance, has risen by 601 percent just this year alone.
"Given that the stock prices of the secondary battery stocks have risen too quickly during the two months following February, it's likely that they cannot meet the qualification for addition," said Kang Song-chul, analyst from Eugene Investment & Securities.
The decision on the MSCI's rebalances will be made after taking into account the stocks' closing prices next Monday. Monday's closing prices will be a standard for calculation of market caps and the stock price increase rate, on the way to a final decision about the index rebalances.
Even if the secondary battery stocks, which posted skyrocketing upward moves throughout the year, are included in the global index, experts point out the high possibility that stock prices could fall. This is because, while global funds may purchase newly added stocks with passive money, investors who already hold stocks are inclined to sell them to realize their profits.
The stock prices of SK bioscience, KakaoBank, SillaJen and Shinpoong Pharmaceutical all plummeted, following their inclusion into the MSCI index.
"We've seen many cases where stock prices rose on the expectation of the addition into the index, reaching their peaks right before the addition, and fell once the additions were completed," said Kim Dong-young, senior analyst at Samsung Securities, adding that some of the secondary battery stocks are particularly prone to the possibility of showing this pattern.
