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MSCI maintains Korea’s ‘emerging market’ status

‘Expectations were low from the beginning.’ - Kim Seong-bong

June 23,2011
Global investment index provider MSCI Inc. retained Korea’s emerging market status on its global equities index, citing market rigidity and a lack of accessibility.

The move represents a setback for Korea. MSCI left Korea’s status unchanged in 2009 and 2010 due to the “rigidity” of its investor identification system and lack of an active offshore market for the Korean won.

“The lack of full currency convertibility ... and issues linked to the rigidity of the ID systems, remain unchanged from the view of international institutional investors,” MSCI said in a statement on its Web site.

MSCI said some measures have been put in place to ease problems on currency convertibility and the identification system ?? such as the revision of the Banking Act and the adjustment of currency market settlement timing. The index compiler, however, said there have been limited improvements in investor feedback.

MSCI also cited the stock market data provision issue as an anticompetitive practice that affected its decision on Korea.

The index provider also maintained Taiwan’s emerging market status, also citing accessibility issues. MSCI said it would delay the review on Qatar and the United Arab Emirates, both currently classified as frontier markets, to December.

Korea and Taiwan will remain under review for potential reclassification next year, said the index provider, adding that no new candidates will be added to the list for potential upgrades in the 2012 assessment.

Following the decision, Korea’s stock market, the 16th-largest in the world by market capitalization, will continue to be tracked on the MSCI Emerging Markets Index along with 20 other countries. MSCI, based in New York, tracks stock market performances of 77 economies classified into three market categories - developed, emerging and frontier markets.

The retention comes on the heels of a tug-of-war between the index provider and the Korea Exchange (KRX), which was blamed as the biggest block for Korea’s graduation into developed market status.

MSCI had requested to use the KRX’s real-time market data to create and sell derivatives to offshore investors. But the KRX, which operates the world’s largest derivatives market by trading volume, has been reluctant to give in on the data rights issue.

The KRX did not release an official opinion on the MSCI decision.

Market watchers have been split on the inclusion. Some had remained skeptical on the upgrade, citing the KRX’s strong stance on the data rights issue. Others, however, had argued that Korea is likely to graduate from emerging market status since it has been upgraded as a developed market by the Financial Times Stock Exchange (FTSE) Group since 2009.

Korea is the only country on the FTSE Developed Markets Index that is not included in the MSCI Developed Markets Index.

Analysts said the retention is likely to have a limited impact on Korea’s stock market. “Expectations were low from the beginning,” said Kim Seong-bong, a senior analyst at Samsung Securities.

Kim said an upgrade would have shored up investor sentiment, but added investors are now more focused on external uncertainties in Greece and the broader euro zone.

Others supported the view. Korea Investment & Securities Co. analyst Park So-yeon had said ahead of the decision that an upgrade would not bring about a change that is influential enough to change the market landscape in terms of quality and quantity

Park forecast Korea’s reclassification to spur a net inflow of $6.4 billion, noting that around $3 billion of foreign funds flowed into the country following the 2009 FTSE move.


Yonhap



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