The Hidden Pattern in the MSCI Inclusion Game – Signals from Foreign Capital
Editor
Amidst the growing volatility in global stock markets, an intriguing pattern is gaining attention in the Korean stock market. It involves the proactive buying behavior of foreign investors ahead of the inclusion in the MSCI Korea Index. The recently announced results of the November regular review illustrate the precision of their strategy.
On November 5th, local time, MSCI announced in its regular review that APR (012170) and HD Hyundai Marine Solutions (329180) were newly included. A closer look at the stock price movements of these two companies reveals that they had already shown significant upward trends 3-4 months prior to the announcement. This was not mere coincidence but rather a meticulous pre-positioning by foreign investors.
The specific figures make this even clearer. In the case of APR, foreign investors made net purchases amounting to a staggering 187 billion KRW from August to October, the three months leading up to the review announcement. Similarly, HD Hyundai Marine Solutions recorded net purchases of 49.7 billion KRW during the same period. This is interpreted as a strategic move where the possibility of MSCI inclusion was calculated in advance, rather than a mere ‘lucky’ investment.
This pattern is not new. A similar scene unfolded during the regular review in August. LIG Nex1 (079550), Doosan Enerbility (034020), and Hyosung Heavy Industries were the focus of concentrated buying by foreign investors from mid-April, showing a steady upward trend until just before the review announcement. This suggests that foreign investors are closely tracking changes in market capitalization and free-float market capitalization, which are criteria for MSCI inclusion, and are moving proactively.
The February 2025 Review, A New Window of Opportunity
So, what is the current situation as we approach the MSCI regular review in February next year? According to Hana Securities’ analysis, there are several stocks with a high likelihood of inclusion. Candidates include Isu Petasys (007660), ABL Bio (298380), and Kiwoom Securities (039490).
The movements of foreign investors are already being detected. From November to the 18th, the net purchase volume by foreign investors for Isu Petasys reached 196 billion KRW, and ABL Bio recorded net purchases of 41.3 billion KRW. In contrast, Kiwoom Securities saw a net sale of 1.4 billion KRW, indicating relatively lower interest. These supply and demand patterns provide some insight into which stocks foreign investors have more confidence in.
Hana Securities researcher Lee Kyung-soo analyzed the current market situation as one where “demand for alpha (active) strategies is increasing over beta (passive) strategies due to the expansion of index volatility.” In other words, it is a more attractive time for strategies that bet on specific themes or events rather than simply following the market. This is why there is growing interest in the candidates for MSCI inclusion.
Specific target figures have also been presented for Isu Petasys and ABL Bio. The analysis suggests that an additional increase of over 14% and 13%, respectively, is needed. This is the result of calculating how much higher they need to rise to reach the threshold for MSCI inclusion based on current market capitalization. Of course, these figures can change depending on the market capitalization changes of other stocks or the overall market situation, but they serve as an important reference point for investors.
The Balance of Risk and Opportunity
However, betting on MSCI inclusion is not always successful. Notably, there are still about four months left until the inclusion period, during which various variables can come into play. Changes in the fundamentals of each stock, the overall flow of foreign capital, and the emergence of other candidate stocks can all have an impact.
In fact, past cases show that some stocks experienced significant corrections after failing to be included despite rising on MSCI inclusion expectations. Additionally, even if inclusion is confirmed, there are often cases where selling pressure mounts immediately after the announcement, following the adage “buy the rumor, sell the news.” Therefore, it is crucial to consider the intrinsic value and business prospects of the company alongside the possibility of inclusion.
Isu Petasys, for instance, is a semiconductor materials specialist currently gaining attention amid the AI semiconductor boom. Its technological prowess in the advanced packaging materials field is recognized, and expansion of transactions with major clients like Samsung Electronics and SK Hynix is anticipated. However, the cyclical nature of the semiconductor industry means that performance can fluctuate significantly with demand changes, posing a risk factor.
ABL Bio is a biotech company specializing in the development of antibody drugs, with recent collaborations with global pharmaceutical companies driving its stock price upward. Its technology in the ADC (antibody-drug conjugate) field is gaining attention, increasing the potential for overseas expansion. However, the biotech industry is characterized by high volatility due to clinical results and regulatory approvals, which must be considered.
Kiwoom Securities, as a leading player in the securities industry, has a stable profit base, but recent foreign net selling continues. This is likely influenced by intensified fee competition in the securities industry and the burden of digital transformation costs. However, there is also an evaluation that it has growth potential in the medium to long term alongside the growth of the domestic stock market.
Experts emphasize several precautions when utilizing this MSCI inclusion betting strategy. First, it is important to continuously monitor the scale and pattern of foreign net purchases. If the buying momentum suddenly decreases or turns into net selling, the likelihood of inclusion may decrease. Additionally, it is necessary to understand the changes in market capitalization of each stock and the relative position of competing stocks.
Above all, MSCI inclusion is merely a catalyst, and ultimately, the business competitiveness and growth potential of the company must support the continuous rise in stock prices. It is important to assess investment value from a medium to long-term perspective, rather than just engaging in short-term event betting.
Currently, the Korean stock market is experiencing increased volatility due to global economic uncertainties and domestic political issues. In such times, the clear theme of MSCI inclusion can be quite attractive to investors. However, cautious approaches are necessary, avoiding excessive expectations or short-term thinking. After all, the market will eventually reflect the intrinsic value of companies in the long run.
This article was written by reading a news article and adding personal opinions and analysis.
Disclaimer: This blog is not a news outlet, and the content is the author’s personal opinion. The responsibility for investment decisions lies with the investor, and no responsibility is taken for investment losses based on the content of this article.
