KRX eases index capitalization regulation

Samsung Electronics, the No. 1 company in Korea by market capitalization, is probably going to avoid a big sell-off in June after Korea Exchange (KRX) Thursday changed a major regulation.

The operator of both the main and secondary bourses in Korea said it will discontinue a regulation that prohibited any one company from accounting for more than 30 percent of market capitalization on the Kospi 200 and KRX 300 indexes.

The KRX announcement followed another set of deregulation announced Wednesday by the Financial Services Commission, which said it would lift a 30 percent limit on shares of a single company in the portfolios of exchange traded funds (ETFs) and other publicly traded funds.

Samsung Electronics is the only company anywhere near the 30 percent market cap for the Kospi 200.

“Due to an easing of regulation on fund operations in Korea, we will not impose a market cap limit on indexes for Korea,” KRX said in a release Thursday.

The regulation by KRX was first implemented last June to help stabilize the market. If the average market cap of Samsung Electronics in the Kospi 200 and KRX 300 indexes between March and May and between September and November exceeded 30 percent, funds that track the two indexes would have to shed a certain amount of Samsung shares in June and December.

Samsung Electronics’ ratio in the Kospi 200 stayed below 30 percent until November. As a result, the regulation was never activated.

But Samsung accounted for 33.07 percent of the Kospi 200 index in March.

“It’s hard to say that the deregulation will have any positive effect on Samsung’s share price, but it is free from downward pressure,” said Song Seung-yeon, an analyst from Korea Investment & Securities. “If the regulation had taken effect, there were estimates that funds such as ETFs could shed Samsung shares worth 1.5 trillion won. Now that concern is gone.”

“With the Covid-19 virus outbreak already hurting production at Samsung Electronics, including its smartphone business, the deregulation will hardly have a visible impact on its stock price,” said Song Myung-seob, an analyst from Hi Investment & Securities.

KRX will keep the regulation for overseas investors, after revising the details, as other countries still require market cap regulation for funds that track major indexes.

“In order to attract foreign investors to the Korean market, we are going to come up with a new rate for market caps for each country,” KRX said in the release.

Samsung Electronics shares ended at 46,800 won Thursday, up 2.18 percent from the previous trading day.

BY HWANG EUI-YOUNG, JIN EUN-SOO [ jin.eunsoo@joongang.co.kr]