Among emerging market stocks, South Korean shares were most offloaded by overseas investors last month as a result of Asia’s fourth-largest economy’s reduced weighting in the Morgan Stanley Capital International emerging markets index, a report by a local brokerage said Thursday.

According to Yuanta Securities, foreigners net sold South Korean shares worth nearly $3 billion in November alone, which marked the largest volume among 10 major emerging markets during the same period. 

Brazil followed with a corresponding figure of a net $2.1 billion, and Indonesia came in third with a net $493 million. The Philippines and Thailand came in fourth and fifth with a net $259 million and a net $255 million, respectively.

Meanwhile, foreigners net purchased $3.1 billion worth of Indian shares and nearly $2 billion worth of Taiwanese shares in the cited period.

A Yuanta Securities analyst cited global index provider MSCI’s decision to rebalance its index early last month and increase the weighting of Chinese A shares, which came at the expense of Korea’s weighting in the index.

The benchmark index is used to measure equity market performance and tracked by institutional investors with more heavily weighed countries having tendency to attract lucrative investments.

The index is reviewed four times a year and South Korea has lost weighting to China on three occasions this year -- in May, August and November.

MSCI increased the weighting of A shares by 5 percentage points each time, having held them at 5 percent after adding them to the index in June 2018.

This means the weight of A shares on the emerging markets indexes reached 20 percent at the last rebalancing on Nov. 26.

“Foreign investors offloading of Korean stocks were most prominent in May, August and November this year when the MSCI increased the weighting of A shares each time,” Yuanta Securities analyst Min Byung-kyu said.

But Min also expressed anticipation over the fact that MSCI’s last index rebalancing of the year has ended.

“The wrap of the rebalancing can translate into a stable demand from foreign investors – when the Vanguard group (shifted from MSCI benchmarks to cheaper FTSE and CRSP indices) in 2013, overseas investors net sold Korean shares worth nearly 10 trillion for six months following the change (due to Korea being classified as a developed market in the latter two indices),” he said.

“But after the dust settled, foreigners net purchased 13.2 trillion won in the following months,” he added.

By Jung Min-kyung (mkjung@heraldcorp.com)