The pending war, standoff of neighbor North Korea, sagging domestic consumption and corporate scandals are holding back much anticipated South Koreas graduation on investment indexes from emerging market into developed market, despite its strong stock market performance, The Wall Street Journal reports.
The country seemed to be ready for such an upgrade after the Morgan Stanley Capital International (MSCI) Korea Index achieved a 13% yearly gain on average in the past five years, compared to 9% of MSCI Emerging Markets Index and 4% of S&P 500. Analysts believe South Korea meets or exceeds the quantitative criteria for developed market status.
Talks about the graduation have cooled down recently. "We might be seeing confirmation that Korea may be pretty much emerged in terms of the economic numbers, but its volatility and geopolitics make it a developing market rather than a developed one," Marc Edwards, co-manager of the $170.4 million T. Rowe Price Emerging Markets Stock Fund told WSJ.
An upgrade of South Korea will force emerging market funds managers to pull out of the biggest market in their sector, but analysts believe it will benefit South Korea as the money it will attract from developed market will exceed the money emerging market funds will pull out.