Brokerage expects an upgrade to draw in foreign funds worth $12 billion


If South Korea is included in the MSCI advanced market index, as much as $12 billion worth of foreign investment could flow into the local stock market, a brokerage said on Wednesday.

Daishin Securities said the chance for the inclusion of Korea in the prestigious index is higher than ever this year as the country’s bourse operator Korea Exchange worked out the KOSPI 200 index data rights with MSCI Inc.

Korean shares account for about 15 percent of the MSCI Emerging Markets index, and when Korea grabs the long-awaited upgrade, it will play as a positive factor for the Korean financial market, the brokerage said.

Korea had tried to make it to the MSCI World Index where developed nations are grouped together to boost its status on the global financial market, but the global investment index provider retained the country’s emerging market status in the past three years, citing Korea’s lack of accessibility and other factors.

Daishin said the biggest winners, if the upgrade is approved, will be blue-chip shares such as Samsung Electronics, Hyundai Motor and LG Chem.

“Once the Korean stock market is included in the advanced nation index, the market will attract foreign funds, chiefly from the United States, amounting to 11-13 trillion won ($9.7-11.4 billion),” said Lee Seung-jae, analyst at Daishin Securities. “The foreign buying will hit a peak in the second quarter of this year if such upgrade gets implemented.”

The review for the upgrade is scheduled in the second week of May, and analysts expect that the Korean market has a better chance to make it to the advanced market group this time.

Other analysts also agree that the MSCI upgrade is likely as the country’s financial authorities made efforts to improve the local conditions to meet the requirements.

Currently, Taiwan and Korea are chief candidates for the upgrade, and analysts said Korea has more shares that represent different sectors in a balanced way.

Analysts said SK Hynix, LG Electronics, NHN and other major shares on the local bourse might get a boost from the upgrade.

By Yang Sung-jin (insight@heraldcorp.com)