MSCI May Delay Korea’s Upgrade to Developed Country for Indexes

MSCI May Delay Korea’s Upgrade to Developed Country for Indexes
By Saeromi Shin

Dec. 17 (Bloomberg) -- MSCI Inc., whose stock indexes are tracked by investors with $3 trillion in funds, may delay its decision to reclassify South Korea as a developed country beyond its original June 2009 timeframe.

MSCI, which now places South Korea in its emerging-market index, said more time will be needed for authorities to act on its feedback, including the “limited convertibility” of its currency, the New York-based company said in a statement.

South Korea is the third-largest developing nation in MSCI’s stock benchmarks, representing 13.1 percent of the MSCI Emerging Market Index as of June. South Korea was raised to “developed” status from the FTSE Group in September and will be upgraded from its “advanced emerging” rating in September 2009.

“Investors mentioned both the lack of an offshore currency market for the Korean won and the operational difficulties in dealing with the currency in the onshore market” as concerns over changing South Korea’s status, MSCI said late yesterday.

Commentary: It appears as hard to convert Korean won for investors as it is for tourists at airport exchange counters? I would love to know what those operational difficulties are? Could they be excessive delays in cash or currency conversions locally or banks rates which are unfavourable regardless of volume totals?

South Korean equities have a total capitalization of 596 trillion won ($450 billion) as of yesterday, according to data by the Korea Exchange, making it the fifth-largest Asian stock market. The Kospi index, the nation’s benchmark, has dropped 38 percent this year, as most investment funds track indexes in developed markets, considered less risky amid the global credit crisis. The MSCI AC Asia Pacific Index fell 43 percent.

A final decision on Israel, which is also under review for a potential upgrade to a developed market, will be made no later than June, MSCI said, which cited the “relatively short” settlement cycle for equities as the key concern for the Tel Aviv Stock Exchange. It will also conclude consultations for potential upgrades of Kuwait, Qatar and United Arab Emirates to emerging- market indexes by June.

To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net