South Korea was kept as an emerging market at MSCI Inc as the index provider skipped the nation for an upgrade for a second year. Taiwan, under a similar review, also retained its status as a developing market.
MSCI left South Korea’s status unchanged in June last year and said it would evaluate the nation for an upgrade as a developed market this year.
The latest review again cited the “rigidity” of its investor identification system and the lack of an active offshore market for the country’s currency, as well as anti-competitive practices relating to stock market data.
The decision means the nation will lose out on purchases of equities in Asia’s sixth-biggest market by investors who are restricted to developed-nation equities because of their perceived lower risk. The South Korean market was assigned “developed” status by FTSE Group, a rival index compiler, in September last year.
The benchmark KOSPI closed 0.47 percent, or 8.2 points, lower at 1,731.48 in Seoul yesterday.
“On the stock data issue raised by MSCI, we believe that’s an irrelevant issue for upgrading the nation to developed status,” Kong Do-hyun, a spokesman for Korea Exchange Inc, said by telephone yesterday. “Korea Exchange will continue its consultation with MSCI in a direction that will help further develop [the] South Korean market.”
MSCI indexes are tracked by investors with an estimated US$5.2 trillion in assets, compared with about US$4 trillion for FTSE gauges, according to a May 26 report by Shinhan Investment Corp.
South Korea represents 13.2 percent of the MSCI Emerging Market Index, the third-largest after China and Brazil, according to a May 19 report by Morgan Stanley.
South Korea is better off staying as an emerging market as its weighting among developed markets will be “very small,” Credit Suisse Group said.
BIG FISH, SMALL POND
“It’s better to be a big fish in a small pond,” Sakthi Siva, an analyst at Credit Suisse who is the top-ranked Asia strategist in Institutional Investor’s poll this year, said in a briefing in Seoul yesterday.
MSCI said it would review South Korea for a possible upgrade next year. Countries that were elevated to developed market status by MSCI in recent years include Greece and Israel.
Taiwan will also stay under review for a potential upgrade to developed status next year, the index provider said. The United Arab Emirates and Qatar, which retained their frontier markets status, will remain under review for a potential reclassification to emerging markets, it said.
The so-called frontier markets typically have less-developed economies and financial markets than emerging markets, and have more restrictions on foreign stock ownership.
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