Barclays Classifies South Korea 'Emerging Market'

The ongoing debate regarding South Korea's status as a developed or developing market grew a bit on Monday when Barclays (BCS) announced its bond indexes will view the country as an emerging market. South Korea's status as an emerging market has long debated, particularly as the nation's wealth has grown in recent years.

Earlier this year, index provider MSCI (MSCI) maintained South Korea as an emerging market for its indexes, though the country remains on MSCI's list for possible promotion to developed market status.

The debate gained more steam in early October when Vanguard, the third largest U.S. ETF provider, announced it would drop the MSCI Emerging Markets Index being used as the benchmark for the Vanguard MSCI Emerging Markets ETF (VWO). VWO will use the FTSE Emerging Markets Index, which does not classify South Korea as a developing nation.

Barclays' Reasoning
Barclays EM benchmark bond indices (hard currency, local currency, and inflation-linked) will use a single consistent list of countries classified as EM when determining index eligibility. Criteria for inclusion in this list include both World Bank income group classifications and International Monetary Fund country designations. In addition, the list will include countries that bond investors generally classify as EM: South Korea, Israel, Taiwan, and Czech Republic, according to a statement issued by Barclays.

The changes will take effect in March 2013, Barclays said in the statement.

Taiwan is also on the MSCI list of countries that could make the jump to developed market status and Israel did just that several years ago.

Other Views
In addition to FTSE, Standard & Poor's, the International Monetary Fund and the World Bank view South Korea as a developed nation. However, Barclays and MSCI are not alone in still classifying South Korea as emerging. Allocations to South Korea are found in several popular WisdomTree (WETF) ETFs, including the WisdomTree Emerging Markets Equity Income Fund (DEM). In terms of emerging market bond ETFs that include exposure to South Korea, that list includes the following well-known ETFs: The WisdomTree Emerging Markets Local Debt Fund (ELD), the WisdomTree Emerging Markets Corporate Bond Fund (EMCB) and the iShares Emerging Markets Local Currency Bond Fund (LEMB).