[THE INVESTOR] The decision to include China's domestic stocks in the Morgan Stanley Capital International emerging market index is expected to have limited impact on the Korean stock market, according to the financial regulator on June 21.

The Financial Service Commission said in a statement on June 21 that the impact would be limited considering the actual inclusion date -- June 2018 -- and the growing investments in emerging markets.

MSCI has finally endorsed China’s domestic A shares, after a three-year review period, for inclusion in the influential Emerging Markets Index. MSCI will add a total of 222 China’s domestic A shares in the index that account for 0.73 percent of the US$1.6-trillion overall index.

Korean shares in the index are expected to decline by 0.23 percentage point to 15.27 percent. The FSC estimates a possible capital outflows of between 600 billion won (US$524.81 million) and 4.3 trillion won from the Korean stock market.

Byun Kyung-rok, an anlayst at Samsung Securities, pointed out that it took six years for MSCI to fully include Korean stocks in the index, and nine years for the Taiwanese stocks. “It will be an incremental adoption that will take time. There is no need to worry about too much about capital outflows,” Byun said.

Meanwhile, the FSC said that it would not push too hard for inclusion in the advanced market index. “It is not easy to satisfy the requests from the MSCI within a short period of time due the degree of openness and stability of foreign currency markets.”

“We won’t be pushing it too hard, but will try hard to raise global competitiveness of the capital market, while continuing to negotiate with MSCI,” said a spokesman for the commission.

On June 21, Korean stocks ended in negative territory. The benchmark KOSPI fell 0.49 percent to 2,357.53 points, while the secondary KOSDAQ also closed 0.54 percent lower at 665.77 points.

By Park Ga-young (gypark@heraldcorp.com)