A strategy of buying stocks expected to be added to Korea's major stock indices is gaining significant attention.
This is because the amount of money flowing into passive funds, which automatically track these indices, has grown tremendously. The core idea is simple: if you can predict which stocks will be added to an index, you can buy them beforehand and potentially profit from the wave of mandatory buying that follows. This phenomenon is known as the 'inclusion effect' or 'rebalancing effect'.
So, what's causing this surge in passive funds? There are two main drivers. First is the powerful momentum in the AI and semiconductor industries. Companies like SK Hynix have reported record earnings thanks to soaring demand for high-bandwidth memory (HBM), boosting the entire stock market. Second, the government's 'Corporate Value-up Program' has increased investor confidence and attracted capital to Korean stocks, further inflating the assets under management (AUM) of major ETFs like the 'KODEX 200' and 'KODEX KOSDAQ 150'. For instance, the AUM of KOSDAQ 150-tracking funds has quadrupled in a short period.
This creates a clear causal chain. A larger AUM for index-tracking funds means that when a new stock is added during the semi-annual rebalancing in June, the funds must purchase a much larger volume of that stock to correctly reflect the index's new composition. This predictable, large-scale buying pressure can create a significant upward 'supply-demand shock' on the stock's price on the day of inclusion.
However, this strategy isn't without risks. Many potential candidates may have already seen their prices rise in anticipation, making them overvalued. Furthermore, with short-selling now fully resumed in the market, there's a risk that traders could bet against overhyped stocks, increasing volatility. Therefore, a successful approach requires careful selection of companies with strong fundamentals—like consistent earnings growth and healthy cash flow—rather than just chasing the rebalancing theme.
- Passive Fund: An investment fund that tracks a market index, such as the KOSPI 200. It buys and sells assets automatically to mirror the composition and performance of its benchmark index, rather than having a fund manager actively pick stocks.
- KOSPI 200 / KOSDAQ 150: These are major stock market indices in South Korea. The KOSPI 200 represents the 200 largest and most liquid stocks on the KOSPI market, while the KOSDAQ 150 comprises 150 key stocks from the tech-heavy KOSDAQ market.
- Supply-Demand Effect: In this context, it refers to the impact on a stock's price caused by a large, predictable buying pressure from passive funds when the stock is newly included in an index.