Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<ul>
<li>Korea Exchange announced the KOSPI 200 and KOSDAQ 150 indices constituents changes today. </li>
<li>Kum Yang (001570 KS) and Cosmochemical (005420 KS) were included in the KOSPI 200. Dongwon Industries (006040 KS) and Hwaseung Enterprise (241590 KS) were excluded in KOSPI 200 index.</li>
<li>We expect continued underperformance of Kumyang and Cosmo Chemical as many investors will now start to sell these stocks based on <em>"buy on rumor, sell on news"</em> strategy.</li>
</ul>


Korea Exchange announced the KOSPI 200 and KOSDAQ 150 indices constituents changes today. 
Kum Yang (001570 KS) and Cosmochemical (005420 KS) were included in the KOSPI 200. Dongwon Industries (006040 KS) and Hwaseung Enterprise (241590 KS) were excluded in KOSPI 200 index.
We expect continued underperformance of Kumyang and Cosmo Chemical as many investors will now start to sell these stocks based on "buy on rumor, sell on news" strategy.


Trading Strategy Post KRX Rebalance Announcement of KOSPI 200 and KOSDAQ 150

<ul>
<li>In this insight, we discuss the potential inclusions and exclusions that the locals are highlighting for the KOSPI 200 and KOSDAQ 150 rebalance in May 2023. </li>
<li>The top five best performing stocks YTD that are expected to be included in either KOSPI200 and KOSDAQ150 include Rainbow Robotics, Kumyang, Cosmo Chemical, Yunsung F&amp;C, and Posco M Tech.</li>
<li>In the coming weeks, there is a higher probability these five stocks underperform the market on average as many investors sell the news on them getting included in these indices. </li>
</ul>


In this insight, we discuss the potential inclusions and exclusions that the locals are highlighting for the KOSPI 200 and KOSDAQ 150 rebalance in May 2023. 
The top five best performing stocks YTD that are expected to be included in either KOSPI200 and KOSDAQ150 include Rainbow Robotics, Kumyang, Cosmo Chemical, Yunsung F&amp;C, and Posco M Tech.
In the coming weeks, there is a higher probability these five stocks underperform the market on average as many investors sell the news on them getting included in these indices. 


Potential Inclusions & Exclusions for KOSPI 200 and KOSDAQ 150 in May 2023 Highlighted by Locals

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

<ul>
<li>With 4 trading days left in the review period, we see three potential changes for the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> in June.</li>
<li>
<a href="https://www.smartkarma.com/entities/kum-yang-co-ltd" target="_blank" data-smartkarma-citation="entities:10364:1" rel="noopener">Kum Yang (001570 KS)</a>, <a href="https://www.smartkarma.com/entities/cosmochemical-co-ltd" target="_blank" data-smartkarma-citation="entities:3747:1" rel="noopener">Cosmochemical (005420 KS)</a> and <a href="https://www.smartkarma.com/entities/youlchon-chemical-co-ltd" target="_blank" data-smartkarma-citation="entities:2649:1" rel="noopener">Youlchon Chemical (008730 KS)</a> could replace <a href="https://www.smartkarma.com/entities/dongwon-industries-co-ltd" target="_blank" data-smartkarma-citation="entities:1783:1" rel="noopener">Dongwon Industries (006040 KS)</a>, <a href="https://www.smartkarma.com/entities/hwaseung-enterprise-co-ltd" target="_blank" data-smartkarma-citation="entities:35611:1" rel="noopener">Hwaseung Enterprise (241590 KS)</a> and <a href="https://www.smartkarma.com/entities/hyundai-home-shopping-network-corp" target="_blank" data-smartkarma-citation="entities:2357:1" rel="noopener">Hyundai Home Shopping Network (057050 KS)</a>. </li>
<li>If approved by shareholders, the <a href="https://www.smartkarma.com/entities/dongkuk-steel-mill-co-ltd" target="_blank" data-smartkarma-citation="entities:7293:1" rel="noopener">Dongkuk Steel Mill (001230 KS)</a> split increases the probability of <a href="https://www.smartkarma.com/entities/youlchon-chemical-co-ltd" target="_blank" data-smartkarma-citation="entities:2649:1" rel="noopener">Youlchon Chemical (008730 KS)</a> inclusion and <a href="https://www.smartkarma.com/entities/hyundai-home-shopping-network-corp" target="_blank" data-smartkarma-citation="entities:2357:1" rel="noopener">Hyundai Home Shopping Network (057050 KS)</a> could avoid deletion.</li>
</ul>


With 4 trading days left in the review period, we see three potential changes for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in June.

Kum Yang (001570 KS), Cosmochemical (005420 KS) and Youlchon Chemical (008730 KS) could replace Dongwon Industries (006040 KS), Hwaseung Enterprise (241590 KS) and Hyundai Home Shopping Network (057050 KS). 
If approved by shareholders, the Dongkuk Steel Mill (001230 KS) split increases the probability of Youlchon Chemical (008730 KS) inclusion and Hyundai Home Shopping Network (057050 KS) could avoid deletion.


KOSPI200 Index Rebalance Preview: Materials to Replace Consumer Stocks

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

<ul>
<li>Dongwon Industries’ float rate is less than 10% (1 - 63.15% - 27.65% = 9.20%), which makes it ineligible for KOSPI 200. KRX will reflect this in the June review.</li>
<li>The passive outflow size due to K200 deletion is expected to be about 50 billion won, which will cause an impact of about 28x ADTV.</li>
<li>Considering this deletion has not been sufficiently exposed in the market, the actual price impact may be even more significant and preemptive.</li>
</ul>


Dongwon Industries’ float rate is less than 10% (1 - 63.15% - 27.65% = 9.20%), which makes it ineligible for KOSPI 200. KRX will reflect this in the June review.
The passive outflow size due to K200 deletion is expected to be about 50 billion won, which will cause an impact of about 28x ADTV.
Considering this deletion has not been sufficiently exposed in the market, the actual price impact may be even more significant and preemptive.


Aggressive Shorting on Dongwon Industries, Which Has Not Been Noticed as a K200 Deletion

<ul>
<li>DGB Financial Group's market cap makes it virtually impossible to get deleted even with Kakao Pay's GICS change in this June rebalancing.</li>
<li>It's unclear whether this has damaged the price impact of K200 inclusion. Nevertheless, the intensity of the pre-rebalancing flow wasn't aggressive, possibly due to the combination of factors, including this.</li>
<li>This suggests the possibility of an intense price impact resulting from a more concentrated flow right before the effective date, so we should prepare a setup that considers this.</li>
</ul>


DGB Financial Group's market cap makes it virtually impossible to get deleted even with Kakao Pay's GICS change in this June rebalancing.
It's unclear whether this has damaged the price impact of K200 inclusion. Nevertheless, the intensity of the pre-rebalancing flow wasn't aggressive, possibly due to the combination of factors, including this.
This suggests the possibility of an intense price impact resulting from a more concentrated flow right before the effective date, so we should prepare a setup that considers this.


Clarifying Market's Inaccurate Constituent Change Forecast in K200 Rebalancing with GICS Revision

South Korea

Hwaseung Enterprise Co., Ltd. manufactures athletic shoes through Original Development Manufacturing(ODM) and Original Equipment Manufacturing(OEM). The Company supplies its products to Adidas and Reebok.

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Hwaseung Enterprise (241590 KS)

Trading Strategy Post KRX Rebalance Announcement of KOSPI 200 and KOSDAQ 150

Korea Exchange announced the KOSPI 200 and KOSDAQ 150 indices constituents changes today. We expect continued underperformance of Kumyang and Cosmo...

Douglas Kim

Potential Inclusions & Exclusions for KOSPI 200 and KOSDAQ 150 in May 2023 Highlighted by Locals

In this insight, we discuss the potential inclusions and exclusions that the locals are highlighting for the KOSPI 200 and KOSDAQ 150 rebalance in...

Douglas Kim

KOSPI200 Index Rebalance Preview: Materials to Replace Consumer Stocks

There could be 3 changes for the KOSPI20 in June with Youlchon Chemical sitting at the cusp. The impact on the deletes will be higher and short...

Brian Freitas

Aggressive Shorting on Dongwon Industries, Which Has Not Been Noticed as a K200 Deletion

This post presents the shorting opportunity on Dongwon Industries, which will likely be deleted in the KOSPI 200 June review, as its free-float...

Sanghyun Park

Clarifying Market's Inaccurate Constituent Change Forecast in K200 Rebalancing with GICS Revision

This post clarifies the market's inaccurate constituent change forecast on the upcoming KOSPI 200 rebalancing in June with the GICS revision,...

Sanghyun Park

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