South Korea’s tax plan may be detrimental to its stock market, says MSCI

CHICAGO: MSCI Inc, whose decisions on stock indexes guide the investment of trillions of dollars, said South Korea’s proposed changes to capital gains taxes could make the nation’s market harder to access.

Under a draft plan, some foreign investors would face capital gains taxes if they hold as little as five per cent of a South Korean company’s stock, a big change from the current 25 per cent threshold. This would cover investors from nations that South Korea didn’t have a tax treaty with, which included Hong Kong, Singapore, Luxembourg and the Cayman Islands, according to a Bloomberg Gadfly column.

“This proposal, if implemented as presented, could potentially have negative impacts on Korean equity market accessibility and hence, the replicability of the MSCI Korea Indexes and the MSCI Emerging Markets Index,” said MSCI.

If a country’s stock market isn’t deemed accessible enough, MSCI could in theory yank its shares from widely followed indexes.

It was a little early in the process to be jumping to worst-case conclusions, according to Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, who helps oversee US$35 billion (RM137.8 billion).

“Concern that the MSCI is going to kick South Korea out of its indexes is premature now that we have no specific details on whether the tax policy change will occur,” he said.

The tax proposal is open for public comment through the end of this month and likely wouldn’t go into effect until the middle of the year. Bloomberg