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Over $7 billion worth of foreign capital could pull out of Korean equities to instead invest in emerging markets ready to join the Morgan Stanley Capital International (MSCI)’s emerging markets index next year, analysts warned.
MSCI, one of the largest providers of benchmarks for issuers of exchange traded funds and index funds, announced it was promoting Argentina for re-entry after 10 years and Saudi Arabia to its widely-followed Emerging Markets Index.
The Saudi Arabia index could be included as early as May 2019 with a weight of around 2.6 percent. Another OPEC member, Kuwait, was cited as a candidate for emerging market promotion after 2019 review.
Entries of major oil-producing nations could steal the weight of Korean index and investors from Korean markets, warned brokerage houses.
“A 2.6 percent weight would pare 0.4 percentage point in the weight of Korean index to 14.96 percent. Foreign investors could cash in as much as 8.36 trillion ($7.5 billion),” Mirae Asset Daewoo Securities said.
SK Securities Co. estimated the newcomers could lure 7.9 trillion won away from the Korean bourse - Saudi shares 6.6 trillion won and Argentina’s 1.3 trillion won - dealing a heavier blow to the Seoul exchanges than the inclusion of China A shares in MSCI.
The main Kospi retreated to a new yearly low during Friday. It fell to 2,320.96, the lowest intraday bottom since 2,314.31 on Sept. 6 last year. As of 2:55 p.m. it recovered to 2,346.80 on bargain-hunting.
[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]
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