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South Korea will continue its push for inclusion in the developed-market category under the Morgan Stanley Capital International (MSCI) index after the provider decided to keep Asia's fourth-largest economy in the emerging-market category, the finance ministry said Wednesday. Overnight, MSCI said South Korea will remain in the emerging-market category despite Seoul's efforts to gain inclusion in the developed-market category, citing limited convertibility of the Korean won in the offshore currency market.
Coverage Comparison
Yonhap News Agency reported the decision and the finance ministry's response, along with MSCI's own assessment of Korea's market accessibility. The reports note that Korea has implemented a series of measures to improve foreign access to its equity and currency markets, but underlying issues remain.
The finance ministry said in a statement: "If we continue to implement reforms in the foreign exchange and capital markets on our own schedule, we believe we can be included among advanced economies." The ministry added that the country will continue efforts to communicate with major overseas investors and reflect their feedback in its policies.
MSCI acknowledged the measures announced by Korean market authorities but said investors have communicated that the underlying issues have not been fully resolved. In its global market accessibility review report, MSCI said authorities have continued implementing the reform agenda introduced in prior years, with additional measures announced across several areas. "However, underlying accessibility issues remain unresolved," the report said.
One report framed the setback as an opportunity for deeper reform, arguing that continued classification as an emerging market appears increasingly incongruous for a country of Korea's economic stature. The report said the decision should be viewed less as a verdict on Korea's economic strength than as a reminder that genuine market advancement depends on accessibility, transparency, and investor confidence.
Key Claims
- MSCI identified the limited convertibility of the Korean won in the offshore currency market as a key barrier to reclassification.
- MSCI also said onshore liquidity during extended foreign exchange trading hours remains largely insufficient to support tight execution at standards comparable to developed markets, constraining operational flexibility for index replicators.
- Korea has moved to implement measures, including the launch of a 24-hour foreign currency market later this year, to align its foreign exchange framework with global practice, but a fully deliverable offshore currency market is still not yet available, according to MSCI.
- Korea lifted a short selling ban in early 2025 and implemented a new naked short selling detection system, but MSCI noted that friction has emerged in practice and refinements to operational processes and infrastructure are ongoing.
- MSCI said derivative products linked to Korean indexes have been launched on international exchanges, broadening the offering of investment instruments available to international investors.
- The finance ministry said that if a series of measures are implemented effectively, South Korea could be placed on MSCI's watch list in the annual market classification review later this year, with a decision on its inclusion in the developed market index possible in June 2027.
- Korea has expanded foreign exchange trading hours, reformed short-selling regulations, and pursued a broad agenda of market liberalization, according to the reports.
- One report noted that Korea's capital market is more sophisticated than those of many countries that enjoy developed market status, but international perceptions matter.