MSCI maintains status quo on Korea, will study country's reforms

Reclassification from 'emerging' to 'developed market' will not just help Korea but India too

South Korea once again failed to obtain the much-awaited upgrade from MSCI, despite reforms undertaken by the South East Asian nation to ease access to its market. South Korea is currently classified as an ‘emerging market’ (EM) alongside markets India, China and Taiwan. MSCI on Thursday considered reclassifying South Korea as a ‘developed market’ but decided against it.

Reclassification would have channelled billions of dollars of foreign investments into South Korea. Interestingly, it would have also benefited other EMs like India and China. Korea’s exclusion from the EM Index would have led to distribution of its weightage among existing members. Currently, South Korea has a weightage of close to 13 per cent in the MSCI EM index. China (with a weightage of 29.2 per cent) has the biggest weightage in the index followed by Taiwan (16.18 per cent) and India (14.34 per cent).

As per one estimate, India could be a beneficiary of $20 billion of inflows from passive trackers if South Korea gets excluded. MSCI has said it will reconsider a reclassification after consulting clients about how the reform measures taken by South Korea have helped.

 “Korea could be added to the watchlist in June 2024 with the earliest inclusion in the developed market (DM) index likely in November 2025 or June 2026. There is a long time for this reclassification to happen. All the noise of other EMs (particularly China and India) gaining significant weight due to Korea getting migrated will die down,” said Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research.