"'Shinheung Market' Korean Stock Market, Up to 27.5% Stock Price Increase from Foreign Capital Inflow if Included in MSCI Developed Markets"

[Asia Economy Reporter Jeong Hyunjin] Ahead of Morgan Stanley Capital International (MSCI)'s market reclassification next month, there are claims that the Korean stock market needs to be included in the MSCI Developed Markets. It is analyzed that if the Korean stock market is upgraded to a developed market, foreign stock investment funds will flow in net up to 61 trillion won, raising the stock price above 4,000 points.

The Korea Economic Research Institute under the Federation of Korean Industries forecasted such effects in a report titled 'Effects and Implications of MSCI Developed Market Inclusion' on the 4th. The institute estimated that if the Korean stock market, currently classified as an MSCI Emerging Market, is included in the Developed Markets, foreign stock investment funds amounting to $15.9 billion to $54.7 billion would flow in net. Considering the MSCI tracking fund size to be between $3.5 trillion and $12 trillion, this translates to 17.8 trillion to 61.1 trillion won when converted at last month's won-dollar exchange rate.

Data provided by Korea Economic Research Institute

Based on regression model analysis explaining the net inflow of foreign stock investment funds on the KOSPI index and its volatility, the Korea Economic Research Institute analyzed the effects on the stock index and its volatility upon MSCI Developed Market inclusion. The analysis showed that the KOSPI index would increase by 8.0% to 27.5% from last month's average index of 3,165 points, rising to between 3,418 and 4,035 points. The overall stock price volatility was analyzed to decrease by 4.2% to 14.2%.

The institute stated, "It has been 24 years since Korea joined the OECD, a club of developed countries, in December 1996, and 11 years since Korea was included in the FTSE Developed Market index in September 2009. However, MSCI uniquely classifies Korea as an emerging market rather than a developed market." They added, "Considering Korea is the world's 10th largest economy and a high-income country with per capita income exceeding $30,000, Korea's continued classification as an MSCI Emerging Market is unusual."

The MSCI index is a benchmark index for global investors and has significant influence. When global economic uncertainty increases, emerging markets tend to experience more rapid capital outflows compared to developed markets, increasing market volatility. In fact, comparing the volatility of MSCI Developed and Emerging Market indices from 2008 to 2010 after the global financial crisis, the volatility of developed markets was 6.4% to 16.5% lower than that of emerging markets.

Choo Kwang-ho, Director of Economic Policy at the Korea Economic Research Institute, said, "Remaining in the MSCI Emerging Market entails an emerging market discount and makes stable corporate direct financing difficult due to sudden capital market fluctuations in emergencies. Additionally, there is considerable pressure to reduce Korea's weighting due to China's increased MSCI weighting." He added, "If Korea is upgraded to the MSCI Developed Market, it can simultaneously resolve the emerging market discount, increase stock prices, and reduce volatility. Therefore, public and private sectors must unite and make efforts to achieve this upgrade."

This content was produced with the assistance of AI translation services.