Vanguard unloads shares in large companies first

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Vanguard unloads shares in large companies first

U.S. equity fund Vanguard Group sold its holdings of more top market cap Korean companies than smaller market cap companies in January when it officially began dumping Korean shares, market observers said yesterday.

According to Kiwoom Securities, since Vanguard began selling Korean stocks Jan. 10, the ratio of Vanguard’s holdings of Korean shares in the FTSE Emerging Transition Index decreased by 16 percent.

Among the Korean shares Vanguard owned, it sold 21 percent of stocks of top 40 market cap companies including Samsung Electronics and Hyundai Motor, followed by companies that rank from 41st to 80th place in market cap (19.6 percent), and companies that rank from 81st place to 111th place (15.3 percent) in January.

The U.S.-based asset management company is in the process of switching the benchmark used to measure the performance of its emerging-markets stock index funds to the FTSE Emerging Index from the MSCI Emerging Markets Index.

The FTSE Emerging Index classifies Korea as a developed market and managers of Vanguard’s emerging stock index funds must sell holdings of Korean stocks to comply with the FTSE classification.

Vanguard is selling its holdings of Korean stocks in a 25-week process and market observers estimated the U.S. company is selling an average of 480 billion won of Korean stocks per week.

The FTSE, which classifies Korea as an advanced country in its Emerging Index, has temporarily created a FTSE Emerging Transition Index to allow Vanguard’s smooth transition of their existing emerging market funds to the FTSE emerging Index.

Market observers said Vanguard could dump shares of smaller market cap companies in large chunks after it sells bigger market cap companies in the first part of the process.

“Vanguard’s plan to reduce its holdings of Korean shares by 4 percent every week is based on the index and it is likely that it will start shedding its holdings of smaller market cap companies after it finishes selling certain amount of bigger market cap companies,” said Jeon Ji-won, an analyst at Kiwoom Securities.

“To meet its goal, larger chunks of smaller market cap shares will be dumped in the market each week.”

Another analyst who asked not to be named said the Kospi could plunge if massive selling of smaller market cap shares initiated by Vanguard happens on a day when daily transactions on the stock market are relatively small.

By Kim Mi-ju []
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