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(LEAD) MSCI inclusion of China stocks to have limited impact on S. Korea

All News 10:28 June 21, 2017

(ATTN: ADDS regulator's comments in paras 6-7)

SEOUL, June 21 (Yonhap) -- A decision by U.S.-based index provider Morgan Stanley Capital International (MSCI) to include China's domestic stocks is expected to have a limited impact on South Korean shares, analysts here said Wednesday.

However, South Korea's stock market may experience an outflow in the short term as Chinese stocks entry into MSCI index, the world's most influential compiler of share indexes, would attract funds from investors around the world.

In a statement, the Financial Services Commission said the bourse is likely to see a potential outflow of some 600 billion won (US$526.3 million) to 4.3 trillion won.

Given the date of China's inclusion and the size of foreign capital inflow into South Korea, the financial regulator expected the move to have no significant impact for the time being.

China's domestic stocks will be included in the MSCI index from June 2018, according to the financial regulator.

After a meeting on MSCI's acceptance of Chinese stocks, Jeong Eun-bo, vice chairman of the Financial Services Commission said the possibility of a swift outflow of foreign capital from South Korea is low, given the size of foreigners' net purchase of local stocks.

The senior official said financial authorities will closely monitor the local stock markets.

Yeom Dong-chan, an analyst with eBEST Investment and Securities, said the portion of Korean stocks in the widely tracked MSCI Emerging Markets Index would fall if China's mainland stocks join up.

"On the other hand the total size of Chinese stocks that will be included in the index is relatively small," Yeom said.

Only 222 Chinese stocks will be included and they will account for only 0.73 percent of the index, analysts said. Smaller numbers to be included in the MSCI will limit any serious impact on other markets.

Kim Jung-hyun, an analyst at IBK Securities, expected the Korean stock market to see a possible outflow of more than 24 trillion won in the long term if China's inclusion into the index is completed.
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