After Garena Free Fire ban in India, Sea shares keep tumbling

Sea Ltd.’s sudden plunge is proving to be a burden for a benchmark MSCI Inc. index. The gaming stock, which listed in the U.S. in 2017, has fallen near 60% from an October high including a record plunge on Monday. Sea was added to the MSCI Singapore Free Index last year, and is a key reason why the gauge is trailing Singapore’s benchmark Straits Times Index by 12 percentage points.  As Sea’s troubles deepen amid mounting competition, slowing growth and most recently, India’s ban on its most popular gaming title, Garena Free Fire, so are concerns over the concentration risk for the MSCI Singapore measure. Sea has a 10% weighting, with the full inclusion set to be completed this month.

The MSCI gauge “now consistently trades at a higher volatility” compared to the Straits Times Index, analyst Brian Freitas wrote in a report on independent research website Smartkarma. “The correlation between the indices has also broken down.”   

There is another risk involved too. With the ban on Garena Free Fire, there’s a risk that India may also turn on Sea’s Shopee app, hitting its upside for growth further.

Communication services stocks -- which include Sea -- and the tech sector have a combined 19% weighting on the MSCI measure compared with 7.5% on the Straits Times Index. 

Adding to risk is an upcoming inclusion of U.S. listed ride-hailing firm Grab Holdings Ltd., whose share price has nearly halved since a December trading debut. MSCI announced the change in its February quarterly review.

However, “Grab’s impact is likely to be far more subdued owing to its smaller scale and float,” Citigroup Inc. analysts wrote in a January note prior to MSCI’s announcement.  

Investors redeemed a net $51 million last quarter from the iShares MSCI Singapore ETF, the biggest passive fund that tracks the gauge, though they bought some $62 million so far this year. 

Stocks listed outside Singapore will account for 24% of the MSCI index’s weight after the full inclusions, Freitas wrote on Smartkarma. According to him, about S$108 million ($80 million) worth of existing Singapore-listed shares will be sold to fund passive flows into the additions.