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Seoul: Stocks may see outflow of up to 4.3t won after MSCI includes China

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[SEOUL] The South Korean share market could see outflows of up to 4.3 trillion won following MSCI's decision to add China's mainland-listed shares to its global indexes, a senior Korean government official said on Wednesday.

"Considering the size of global funds that track the MSCI Emerging Markets Index, we see possible outflow of about 600 billion won (S$730.56 million) to 4.3 trillion won from our equities," Jeong Eun-Bo, vice-chairman of the Financial Services Commission said in a policy meeting in Seoul.

While such an outflow is a possibility from South Korea's benchmark index Kospi and junior Kosdaq, the overall impact won't be significant on South Korean equities, Jeong added.

Early on Wednesday, US index provider MSCI Inc said it will add domestic Chinese equities to its widely tracked Emerging Markets Index, which will draw billions of dollars to China's A shares and decrease South Korea's weight in the index.

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The South Korean regulator said the country's weight in the index will shrink by 0.23 percentage points to 15.2 per cent, as China's weighting increases to 28.4 per cent from 27.7 per cent.

Seoul shares will shrug off an outflow of few trillion won, analysts said, as the total market capitalisation of stocks listed on the benchmark main Korean Composite Stock Price Index (Kospi) reached 1,536 trillion won as of closing on June 20.

"Foreign investors generally buy and sell quite large amounts of local stocks, such an amount (4.3 trillion won) will not be a source of fear for local market players," said Rhoo Yong-Seok, a stock analyst at KB securities.

South Korean equities saw a 9 trillion won of net inflow from foreign investors between January and May this year, which will more than offset any potential outflow following China's inclusion in the MSCI index, the FSC said.

The Kospi fell 0.93 per cent to 2,347.10 points as of 0035 GMT, and the won was quoted at 1,141.6 to the US dollar, down 0.5 per cent versus Tuesday's close.