FSC negotiates upgrade for Korea

The Financial Services Commission (FSC) said on Monday it will form a working group with Morgan Stanley Capital International (MSCI) in a bid to upgrade the Korean stock market’s classification to a developed market from its current emerging market status within the MSCI indices.

The FSC and MSCI, a leading index provider, are scheduled to have their first meeting on Thursday as a working group.

For years Korea’s financial regulators and the bourse operator have tried and failed to be included in MSCI’s developed market category. MSCI cited “lack of meaningful developments over the past four years with respect to the two accessibility issues.”

MSCI contended that Korea’s equity market has met most of the developed market criteria of the MSCI market classification framework, most notably in terms of the country’s economic development, stock market size and liquidity.

But major drawbacks continued to be seen, including the limited convertibility of the Korean won and operational inconveniences resulting from the rigidity of its ID system, according to MSCI.

“The MSCI Korea index may be added back to the review list for potential reclassification to developed markets as soon as there is meaningful progress toward resolution of the [accessibility] issues,” the MSCI said.

MSCI is probably the last hurdle before Korea secures the stamp of a developed market in major indices.

The country has been classified as a developed market by the FTSE since 2009.

“The MSCI index is one of the most widely used indexes in the world, and our market’s classification as a developed market [by MSCI] will help us overcome the chronic issues of [the so-called Korea] discount,” the FSC said, adding that an upgrade by the MSCI will be a “global recognition of the quality and maturity of our markets.”

Classification as a developed market is expected to draw more long-term funds instead of the short-term funds that emerging markets have traditionally tended to attract, the FSC said.

It is part of the broader efforts by the FSC to shield the Korean market from both internal and external risks. The country’s stock market has recently been subject to volatilities in Chinese financial markets and heightened geopolitical risks amid mounting tensions with North Korea.

In addition to its MSCI-related efforts, the FSC said it will encourage participation of unions, mutual funds, pension funds and private universities to participate in a pool of a private pension fund that is being launched next month led by the government.

The pool’s initial size is set at 135 billion won ($112.6 million), but is expected to grow bigger, the FSC said.

BY PARK JUNG-YOUN [park.jungyoun@joongang.co.kr]