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Korea aims for MSCI upgrade

Seoul to introduce omnibus account for foreign investors

Korea will introduce an omnibus account system for foreign investors and explore ways to improve the local currency’s convertibility in order to help get its stock market upgraded by MSCI global equity indexes, the Financial Services Commission said Wednesday.

MSCI indexes are some of the world’s most widely tracked benchmarks and serve as the basis for over 500 exchange-traded funds.
Financial Services Commission chief Yim Jong-yong attends a meeting in Seoul on Wednesday. (Yonhap)
Financial Services Commission chief Yim Jong-yong attends a meeting in Seoul on Wednesday. (Yonhap)

“Given the recent conditions of the global financial market and the mature state of the Korean market, we need to more actively pursue the inclusion in the MSCI developed-market index,” the regulator said in its plan for 2016.

Allowing foreigners the use of an omnibus account for trading of local stocks has been among the key requirements laid out by MSCI for Korea’s potential inclusion in its advanced-market index, along with 24-hour trading of the won.

“Details of the new account system will be unveiled Friday,” said the FSC’s general director Kim Yong-beom.

As for the foreign exchange measures, Kim said that the authorities are “cautiously considering what measures it should take.” The FSC has so far stubbornly rejected the idea of allowing offshore trading of the Korean won, citing the need for currency stability.

“Because Korea is a small and open economy, forex (currency market) stability is crucial. So we’re cautiously approaching the matter,” he told reporters in Seoul.

Wednesday’s announcement comes as Korea’s desire for advanced-market status grows in line with recent weaknesses in emerging markets. MSCI’s possible inclusion of the mainland China shares, the “China A” shares, in its emerging market index ― where Korea is currently placed ― is adding urgency to the issue. Korea fears that China will divert a big portion of global investments from Korea if it joins the emerging market index.

MSCI had reviewed Korea for a potential upgrade since 2008, but in 2014 took it off the list of candidates, citing “the absence of any significant improvements in key areas negatively affecting accessibility.“ Its rival index provider FTSE has moved the country to developed-market status in 2008.

Indexing decisions by MSCI and FTSE are closely followed by investors around the world and influence the buying and selling of global funds.

Also included in the FSC’s annual plan for 2016 are the introduction of the “Stewardship Code” that will protect the rights of institutional investors as shareholders and a 1 trillion won ($830 million) measure to bolster the loan market for mid-credit borrowers. The FSC also said it will allow two or three more Internet-only banks to launch, on top of the two approved last year and to be set up by Kakao and KT Corp. 

By Lee Sun-young (