(News Focus) MSCI upgrade likely to be mixed bag for S. Korean brokerage firms

By Kim Young-gyo
HONG KONG, April 28 (Yonhap) -- A possible upgrade of South Korea into the
leading stock market index of advanced economies by U.S. banking giant Morgan
Stanley will likely be a mixed bag of opportunities and challenges for the
country's brokerage firms, financial experts said Wednesday.
Many market watchers expect that Morgan Stanley Capital International (MSCI)
Inc., the index compiling arm of Morgan Stanley, will announce its inclusion of
South Korea into the developed market status this year.
British bank HSBC Holdings Plc last week forecast the upgrade will take place as
early as May or June.
The MSCI equity index, tracked by global fund managers, covers 23 developed
markets, 22 emerging markets and 29 frontier markets. South Korea is currently on
the list of 22 emerging markets.
The stock markets in Asia's fourth-largest economy make up around 20 percent of
the global emerging market funds that invest assets into the financial markets of
developing countries.
The country's entry into the MSCI index for developed markets will give South
Korean brokerage firms more overseas attention in the country's stock markets,
but also tougher competition from global financial institutions, according to
financial officials.
"It will definitely be an excellent step-up opportunity for the South Korean
markets, and the Korean financial firms will have to strive to bring themselves
up to that level," said Park Hyun-kuk, head of Samsung Securities Asia Ltd. in
Hong Kong.
MSCI indices are the benchmark world equity gauge along with the Financial Times
Stock Exchange (FTSE) Group's stock measures. An estimated US$5 trillion in funds
track MSCI indices, with a net $2.5 billion inflow expected for South Korea's
upward revision from emerging to developed market status.
When South Korea is included in MSCI's advanced markets, its markets will
account for 2 percent of the global funds that follow developed economies,
market watchers estimate.
"Percentage-wise, it might sound small, but in absolute terms, the amount of
money that would flow into South Korea will be incomparable to before," Park
said.
Park explained a massive inflow of foreign investment in South Korea's equity
markets, saying global funds that track the MSCI's developed markets are presumed
to be 20-25 times larger than those following the MSCI's emerging markets, in
terms of the amount of money.
The Samsung head, however, warned the MSCI upgrade will force the South Korean
financial industry to reconsider its business models.
"When South Korea was an emerging market, there was a need for Korean experts.
Many investors sought advice from Korean financial firms because the country made
up a large proportion of the emerging markets," he said.
"However, if the market is labeled as advanced, it is possible that Korea-related
funds will be handled as just a small part of all the advanced markets."
Daniel Kim, head of Woori Investment & Securities Ltd.'s Hong Kong business, also
said international fund managers are likely not to seek Korean expertise.
"There was substantial room for us to provide our research services to foreign
investors when South Korea was within the emerging markets," Kim said. "It might
not continue to be so."
An official at a global investment bank admitted to Yonhap News that the MSCI
upgrade might be a challenge not only for Korean firms, but also for
Korea-related experts in global banks.
"Some analysts in the Hong Kong office, who cover South Korea, feel nervous about
South Korea being upgraded to an advanced market, as it might result in the loss
of their jobs," a Goldman Sachs official said, asking for anonymity as he was not
authorized to speak.
"There won't be any need to hire Korean experts, because the Korean markets could
be handled easily by those who manage the global funds of advanced markets," he
said.
Samsung's Park pointed out that in order for Korean firms to survive the upcoming
challenges, they need to stop focusing only on Korean markets.
"There are many South Korean financial firms in Hong Kong, but their main source
of revenue comes from brokeraging South Korean equities to foreign investors
here. They fear South Korea's upgrade will bring about a drop in their market
shares because more global players will participate directly in South Korean
markets," Park said.
"We will have to go beyond South Korea and become a regional player in Asia,"
Park said. "And that is why Samsung and some others have started expanding their
businesses in Hong Kong, in order to do more than brokeraging South Korean
stocks."
ygkim@yna.co.kr
(END)