As Morgan Stanley Capital International (MSCI) decided to exclude Russia from the Emerging Countries (EM) index, attention is focused on the impact it will have on Korea. The projections that other countries, including Korea, which were included in the same EM index, will receive relative benefits are mixed with the prediction that the actual reflected benefit will not be large.
MSCI announced on the 2nd (local time) that it would remove Russia from the EM index and reclassify it as a standalone country. It will be applied following the market closes on the 9th.
This is because it is difficult to see Russia as an investment market any longer due to increased volatility of the Russian ruble and economic sanctions from Western countries. MSCI explained, “After discussing with many global market investors, we received experts’ opinions that the accessibility of the Russian stock market has greatly deteriorated following the Ukraine crisis.”
The independent market consists of countries not included in MSCI’s Developed Markets Index, Emerging Markets Index, and New Market Index. Currently, Ukraine, Bulgaria, Lebanon, and Palestine are classified as independent markets.
It is analyzed that this news might be a good thing for other countries including the EM index. This is because the proportion of other countries increases as Russia leaves the country. As of the 1st of last month, Russia’s weight in the index was estimated to be regarding 1.5%. Assuming that other countries share the same proportion as Russia’s, it is calculated that Korea’s share will increase by 0.2 percentage points from the previous 12.2% to 12.4%.
However, there is also the view that the actual return will not be as big as expected. Seo Sang-young, a researcher at Mirae Asset Securities, predicted in a report published on the same day, “Even if Russia is excluded from the MSCI Emerging Index and trading is suspended, the impact of neighboring emerging countries will not be large because portfolio adjustments are possible using derivative markets such as futures.” .
Researcher Seo said, “In principle, if the MSCI index is changed, a fund that uses the index as a benchmark (BM) should sell Russia and buy countries that are growing in weight in emerging markets such as China, India, and Korea. It is true that we have to buy as much as the proportion of Korea that has increased,” he said.
He added, “Even if Russia departs from the MSCI Emerging Index, conservatively, less than 1 trillion won of passive funds can flow in, so the impact is not significant, but there are some positive aspects in terms of supply and demand as it approaches the 9th.”
Reporter Kim Hee-ri
