Sun, Jan 21, 2018 - Page 16 News List

S Korea tax plan might harm stock market

SCARY PROSPECT:The nation’s tax proposal could make its markets harder to access and might result in MSCI yanking its shares from widely followed indices


MSCI Inc, whose decisions on stock indices guide the investment of trillions of dollars, said South Korea’s proposed changes to capital gains taxes could make the nation’s market harder to access.

Under a draft plan, some foreign investors would face capital gains taxes if they hold as little as 5 percent of a South Korean company’s stock, a big change from the 25 percent threshold.

This would cover investors from nations that South Korea does not have a tax treaty with, which include Hong Kong, Singapore, Luxembourg and the Cayman Islands, a recent Bloomberg Gadfly column said.

“This proposal, if implemented as presented, could potentially have negative impacts on Korean equity market accessibility and hence, the replicability of the MSCI Korea Indexes and the MSCI Emerging Markets Index,” New York-based MSCI said in a statement on Friday.

That is dry language, but it raises a scary prospect for the Asian nation: If a country’s stock market is not deemed accessible enough, MSCI could in theory yank its shares from widely followed indices.

It is a little early in the process to be jumping to worst-case conclusions, said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, who helps oversee US$35 billion and has exposure to South Korea through emerging markets indices.

“Concern that the MSCI is going to kick Korea out of its indexes is premature now that we have no specific details on whether the tax policy change will occur,” McCain said in a telephone interview. “I have been covering the markets for a long time and I don’t recall that the MSCI kicked out a country just like that.”

The tax proposal is open for public comment until the end of this month and likely would not go into effect until the middle of the year.

“The government is aware of the concerns raised in the financial and investment industries, and we are currently reviewing the matter,” a senior government official, who asked not to be identified due to internal policy, said yesterday in a text message.

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