MSCI has not included South Korea on its watchlist for a potential reclassification from an Emerging Market to a Developed Market. As per the announcement, MSCI needs to monitor the implementation of policy reforms further in South Korea, resulting in the country remaining within the Emerging Market classification.

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An inclusion of South Korea in the Developed Market classification would have been positive for India, CNBC-TV18 learnt on Thursday. In case it was put on the watch list, its timeline to enter the Developed Market index would have been 18-24 months.

The global index provider has mentioned three things to take place for any reclassification to occur, according to Nuvama Alternative and Quantitative Research:

Planned reforms must be announced

The announced reforms must be implemented and

International investors must experience the implemented reforms in practice over time.

While the first step was announced by the Korean authorities earlier this year with the exception of restriction on the use of exchange data, the implementation step will be initiated by the latter part of 2023.

The final step can be completed only once investors have had sufficient time to evaluate the efficacy of the changes. MSCI further said that in case the reforms are implemented later this year, South Korea could be added to the watchlist in June 2024, with the earliest inclusion in the Developed Market index in November 2025 or June 2026.

South Korea currently accounts for almost 12.4 percent of the MSCI EM Index and re-allocation of emerging market money may have seen net inflows into other large EM Asian markets like China, Taiwan and India.

Brokerage firm Nomura estimated close to $26 billion of inflows into India and includes both active and passive funds, out of which $20.1 billion may have been active and the others as passive fund flows.

First Published:Jun 23, 2023 6:43 AM IST