The South Korean government stated that more time is needed for the market to feel the effects of institutional improvements following MSCI's decision not to include the country in its watchlist for the developed markets index. The government explained that the ongoing reforms in the foreign exchange and capital markets could eventually lead to South Korea's inclusion in the MSCI developed index.
In a message released on June 24, the Ministry of Economy and Finance and the Financial Services Commission acknowledged that MSCI recognizes the government's efforts and achievements in advancing the foreign exchange and capital markets.
On June 23, MSCI announced in its annual market classification assessment for 2026 that South Korea would not be included in the watchlist for the developed markets index. As a result, the Korean stock market remains classified as an emerging market alongside China and India.
The government attributed South Korea's exclusion from the watchlist this year to ongoing institutional reforms and the need for time to confirm the effects of completed reforms in the actual market.
Officials explained, "Some reforms are still in progress, and even completed reforms require more time for their effects to be felt in the market, which is why we understand that South Korea was not included in the watchlist this year."
MSCI also acknowledged the efforts of South Korean market authorities in improving regulations. However, it assessed that the market accessibility experienced by foreign investors still does not meet developed market standards.
MSCI highlighted the issue of the Korean won's offshore trading as a significant barrier to market access. It noted that the won is not traded in a physical delivery manner in offshore markets, and despite extended trading hours in the domestic foreign exchange market, liquidity during nighttime remains insufficient. This limitation restricts the flexibility of currency management for index-tracking investors, such as global index fund managers.
The limited use of omnibus accounts and the physical transfer system was also identified as a constraint. Additionally, participants in the market have expressed concerns about operational burdens under the newly introduced compliance and monitoring system following the resumption of short selling. The pressure to secure early settlement funds was also mentioned as a discomfort factor for foreign investors.
South Korea was included in the MSCI emerging markets index in 1992. It was placed on the watchlist for potential inclusion in the developed markets index in 2008 but failed to achieve this status due to currency exchange restrictions and market accessibility issues. The country was removed from the watchlist in 2014.
Despite the recent outcome, the government remains committed to continuing reforms in the foreign exchange and capital markets. Officials stated, "If we consistently pursue foreign exchange and capital market reforms according to our own needs and timeline, we expect to be naturally included in the MSCI developed index."
They added, "We will quickly activate regular communication channels with major overseas investors to monitor the actual implementation of improvement tasks and incorporate feedback from the field."
* This article has been translated by AI.
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