Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

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

Event-Driven

Korea Stock Exchange Kospi Index / Event-Driven

<ul>
<li>The highest dividend tax rate drops from 49.5% to 25%, leading the local capital market to view the reform as more shareholder-focused than company-focused.</li>
<li>The top inheritance tax rate drops from the 60% range to 40%, a meaningful reduction for conglomerates like Hyundai and Hanwha, though below initial expectations.</li>
<li>Tax incentives in the reform are less aggressive than expected, with modest corporate and inheritance tax cuts. However, this compromise increases the likelihood of its passage, boosting short-term market expectations.</li>
</ul>


The highest dividend tax rate drops from 49.5% to 25%, leading the local capital market to view the reform as more shareholder-focused than company-focused.
The top inheritance tax rate drops from the 60% range to 40%, a meaningful reduction for conglomerates like Hyundai and Hanwha, though below initial expectations.
Tax incentives in the reform are less aggressive than expected, with modest corporate and inheritance tax cuts. However, this compromise increases the likelihood of its passage, boosting short-term market expectations.


Overall Assessment of the Value-Up Policy-Related Aspects of the Tax Reform Plan Released Today

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>The review period for the September rebalance of the KOSPI Size Indices commenced on 1 June and will end on 31 August.</li>
<li>We see 8 migrations from MidCap to LargeCap, 1 new addition to LargeCap, 11 stocks moving from SmallCap to MidCap and 3 new additions to MidCap.</li>
<li>There are a few stocks that are expected to have passive flows from global and local index trackers over the next few months and that will add to the impact.</li>
</ul>


The review period for the September rebalance of the KOSPI Size Indices commenced on 1 June and will end on 31 August.
We see 8 migrations from MidCap to LargeCap, 1 new addition to LargeCap, 11 stocks moving from SmallCap to MidCap and 3 new additions to MidCap.
There are a few stocks that are expected to have passive flows from global and local index trackers over the next few months and that will add to the impact.


KOSPI Size Indices: Outperformance Slows on Momentum Stalls

<ul>
<li>The major framework of this realignment is likely decided, integrating KOSPI and KOSDAQ into a tiered system based on liquidity, market cap, and financial status, with periodic replacements.</li>
<li>The KOSPI 200's continued existence is uncertain under the new realignment plan, which may shift its role to the value-up index, resembling Japan’s market restructuring model.</li>
<li>The first-tier market's entry requirements will likely reflect value-up index criteria, suggesting greater speculative money movement toward the value-up index starting in September.</li>
</ul>


The major framework of this realignment is likely decided, integrating KOSPI and KOSDAQ into a tiered system based on liquidity, market cap, and financial status, with periodic replacements.
The KOSPI 200's continued existence is uncertain under the new realignment plan, which may shift its role to the value-up index, resembling Japan’s market restructuring model.
The first-tier market's entry requirements will likely reflect value-up index criteria, suggesting greater speculative money movement toward the value-up index starting in September.


KRX's Plan to Integrate KOSPI & KOSDAQ into a Tiered System: Trading Considerations

<ul>
<li>Today's press release unveils details on new flow trading events in Korea's local market from the second half of this year, highlighting two key points.</li>
<li>Firstly, the disclosure rule starts with block deals from August 23rd. Secondly, a 30% or greater stock price correction on disclosure day may cancel the transaction plan.</li>
<li>This highlights the need to consider cancellation risks in pre-disclosure positions and design setups with consideration for the potential for reverse flows as stock prices approach 30% corrections.</li>
</ul>


Today's press release unveils details on new flow trading events in Korea's local market from the second half of this year, highlighting two key points.
Firstly, the disclosure rule starts with block deals from August 23rd. Secondly, a 30% or greater stock price correction on disclosure day may cancel the transaction plan.
This highlights the need to consider cancellation risks in pre-disclosure positions and design setups with consideration for the potential for reverse flows as stock prices approach 30% corrections.


Details of Block Deal Pre-Disclosure Rule Disclosed: Cancellation Risk from 30% Price Correction

Index Rebalance

<ul>
<li>Around a third of the way though the review period, there could be 4 changes for the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX)</a> at the December rebalance.</li>
<li>The impact on the potential inclusions ranges from 0.6-21 days of ADV while the impact on the potential deletions varies from 2.5-16 days of ADV.</li>
<li>The potential adds have outperformed the potential deletions over the last few months and there could be more to go with short selling banned.</li>
</ul>


Around a third of the way though the review period, there could be 4 changes for the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) at the December rebalance.
The impact on the potential inclusions ranges from 0.6-21 days of ADV while the impact on the potential deletions varies from 2.5-16 days of ADV.
The potential adds have outperformed the potential deletions over the last few months and there could be more to go with short selling banned.


KOSPI200 Index Rebalance Preview: 4 Changes Likely in December

South Korea

The KOSPI Index is a capitalization-weighted index of all common shares on the Korean Stock Exchanges. The Index was developed with a base value of 100 as of January 4, 1980. Note: The preferred shares are excluded in calculating the KOSPI Index from June 14, 2002. 

Korea Stock Exchange Kospi Index (KOSPI INDEX)

Korea Stock Exchange Kospi Index (KOSPI INDEX)

KOSPI Size Indices: Outperformance Slows on Momentum Stalls

There could be 41 stocks migrating between size segments in September. The upward migrations have outperformed the downward migrations but the...

Brian Freitas

KRX's Plan to Integrate KOSPI & KOSDAQ into a Tiered System: Trading Considerations

This post examines KRX's plan to integrate KOSPI and KOSDAQ into a tiered system based on promotion and demotion, similar to Japan's, and discusses...

Sanghyun Park

Details of Block Deal Pre-Disclosure Rule Disclosed: Cancellation Risk from 30% Price Correction

This post outlines the block deal pre-disclosure rule officially released today by Korea FSC, highlighting two key points, notably the risk of...

Sanghyun Park

KOSPI200 Index Rebalance Preview: 4 Changes Likely in December

There could be 4 changes for the KOSPI200 in December. The impact on the potential inclusions ranges from 0.6-21 days of ADV while the impact on...

Brian Freitas

Overall Assessment of the Value-Up Policy-Related Aspects of the Tax Reform Plan Released Today

This post provides an overall assessment of the value-up policy-related aspects of Korea's tax reform plan released today.

Sanghyun Park

KOSPI Size Indices: Outperformance Slows on Momentum Stalls

There could be 41 stocks migrating between size segments in September. The upward migrations have outperformed the downward migrations but the...

Brian Freitas

KRX's Plan to Integrate KOSPI & KOSDAQ into a Tiered System: Trading Considerations

This post examines KRX's plan to integrate KOSPI and KOSDAQ into a tiered system based on promotion and demotion, similar to Japan's, and discusses...

Sanghyun Park

Details of Block Deal Pre-Disclosure Rule Disclosed: Cancellation Risk from 30% Price Correction

This post outlines the block deal pre-disclosure rule officially released today by Korea FSC, highlighting two key points, notably the risk of...

Sanghyun Park

KOSPI200 Index Rebalance Preview: 4 Changes Likely in December

There could be 4 changes for the KOSPI200 in December. The impact on the potential inclusions ranges from 0.6-21 days of ADV while the impact on...

Brian Freitas