Daily BriefsEvent-Driven

Event-Driven: SK Telecom, F&F, Afterpay Touch, KMW Co Ltd and more

In today’s briefing:

  • Did Passive Rebalancing Trading on SKT Start Last Friday?
  • KOSPI200 Index Rebalance Preview: Two Changes in September; Five in December
  • Afterpay (APT AU) – Square Is Buying Now in an All Stock Deal
  • K-Stop Movement: Round 2 on August 10th – What Are the Targets?

Did Passive Rebalancing Trading on SKT Start Last Friday?

By Sanghyun Park

As of last Friday’s closing price, SK Telecom’s foreign ownership burnout rate was 94.93%.

So, the foreign room is 5.07%, a level where the MSCI foreign inclusion factor should be reduced from the current 1.0 to 0.25. It is now almost certain that SKT’s index weight will decrease by 75% in this August QIR.

Post review adjustment factorForeign room (1-FOL burnout)
Current adjustment factor≥ 25%15~25%7.5~15%3.75~7.5%< 3.75%
Source: MSCI

Now, the key question is when will SKT’s passive rebalancing trading start reflecting this situation. In this regard, a fairly significant trade movement was detected last Friday.

Of course, the stock market overall was down last Friday. The KOSPI 200 fell 1.15%. However, SK Telecom declined more significantly than KOSPI 200, and its decline was also visibly larger than its direct peers, KT and LG U+.

What we need to pay more attention to here is the selling trend of foreign investors.

Considering that most of the passive funds that follow MSCI Standard Korea are foreign institutions, the most reasonable indicator that can determine whether rebalancing trading occurs should be overseas investors’ trading patterns.

Then last Friday, net foreign trade became negative for the first time in almost a month, and in particular, this level of net foreign trade (-83,058 shares representing 0.12% of the SO) is the highest since December 10 of last year.

KOSPI200 Index Rebalance Preview: Two Changes in September; Five in December

By Brian Freitas

There could be two changes to the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) at the September index futures expiry with KakaoBank (1349010D KS) and Krafton Inc (259960 KS) getting Fast Entry and replacing Lock&Lock (115390 KS) and Jw Pharmaceutical (001060 KS) at the close of trading on 9 September.

Then, the Korea Exchange (KRX) will announce the results of the December 2021 review of the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in November. The constituent changes will be effective after the close of trading on 9 December.

We see 5 potential changes at the December rebalance with F&F (383220 KS), SL Corp (005850 KS), GeneOne Life Science Inc. (011000 KS), Myoung Shin Industrial Co.,Ltd (009900 KS) and Hyosung Chemical Corp (298000 KS) replacing F&F Co Ltd (007700 KS), Samyang Foods (003230 KS), Ilyang Pharmaceutical Co., (007570 KS), LX Holdings (383800 KS) and Dongwon F&B (049770 KS).

The potential inclusions have been outperforming the potential exclusions and this could continue as short selling is only permitted on index constituents and as active funds position for the rebalance following excellent returns at the June rebalance.

Afterpay (APT AU) – Square Is Buying Now in an All Stock Deal

By Brian Freitas

The Afterpay Touch (APT AU) stock has taken a beating recently following a lot of negative press about the Buy Now Pay Later (BNPL) industry. This included a Rebel Wilson ad pulled from Australian TV after complaints from consumer protection groups for playing down the risks of taking on debt. Here in New Zealand, there have been calls for greater regulation of BNPL with families struggling to afford basics while paying off the BNPL loans.

Now, Square Inc (SQ US) has announced that it plans to acquire Afterpay Touch (APT AU) in an all-stock deal that values Afterpay at a 30% premium to its last close. Afterpay Touch (APT AU) shareholders will receive 0.375 shares of Square Inc (SQ US) Class A common stock for each Afterpay share they hold on the record date. Square Inc (SQ US) may elect to pay 1% of total consideration in cash. The transaction values Afterpay Touch (APT AU) at A$39bn.

The transaction is expected to close in the first quarter of 2022 subject to shareholder approval, receipt of regulatory approvals and no material adverse effect in relation to Afterpay Touch (APT AU) or Square Inc (SQ US).

Square Inc (SQ US) intends to establish a secondary listing on the ASX to allow Afterpay Touch (APT AU) shareholders to trade Square Inc (SQ US) shares via CHESS Depositary Interests (CDIs) on the ASX. We expect the Square CDIs to be included in the S&P/ASX 200 (AS51 INDEX) replacing Afterpay Touch (APT AU), though the free float on the CDIs will be lower. 

K-Stop Movement: Round 2 on August 10th – What Are the Targets?

By Douglas Kim

The “K-Stop movement” made its first real move on HLB Inc (028300 KS) on July 15th. The K-Stop movement refers to “Korean Game Stop movement,” where many Korean retail investors have gathered together to actively protest and trade against the institutional investors that have put short positions on various Korean stocks. There are lots of interesting developments with the K-Stop movement so we will update on these key issues in this insight. 

Korea Stock Investors Association (한국주식투자자연합회) (KSIA) is the main sponsoring entity of this K-Stop Movement. On 1 August, KSIA mentioned that it will once again pool the resources of the retail investors to target a specific company to buy on August 10th. The date was originally scheduled on August 15th but they decided to use August 10th instead due to the latter date being on a Sunday. 

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