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MSCI Announced Some Major Changes in Its Classification Review

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South Korea is not yet a developed market

South Korea’s (EWY)(MAKOX) status as a developed market has faced a lot of debate. Some multi-lateral institutions consider it a developed market. MSCI, however, classifies Korea as an emerging market.

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In its annual market classification review for 2016, MSCI said that its Korea Index will not be elevated to developed market status even in its 2017 review. One of the reasons it cited was that the changes announced by the Financial Services Commission in South Korea will not take effect until 2017. It further stated that “the investment frictions related to the lack of convertibility of the Korean Won and restrictions imposed by the local stock exchange on the use of exchange data for the creation of financial products remain unaddressed.”

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MSCI Peru Index may be reclassified

MSCI announced that its Peru Index will remain in the Emerging Markets Index for now. However, it may be reclassified under frontier markets if it falls below the minimum requirement of three constituents for classification as an emerging market. Presently, there are three stocks in the index: Credicorp (BAP), Southern Copper (SCCO), and Compañía de Minas Buenaventura (BVN).

Other changes

The MSCI Argentina Index will be included for the annual review in 2017 to be potentially reclassified as an emerging market because Argentina’s central bank did away with foreign exchanged restrictions and loosened capital controls in December 2015.

The MSCI Nigeria Index may lose its frontier market status and be reclassified as a stand-alone market due to issues with capital mobility. This reclassification could go through in MSCI’s November 2016 semi-annual index review.

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