Korea Fails Again at MSCI Developed Markets Threshold... Aiming for Inclusion Next Year by Improving Accessibility

Announcement to Be Made Early Morning on the 24th...
Emerging Markets Status Maintained
Challenge for Inclusion Postponed to June Next Year
Roadmap for Won Internationalization Expected in Second Half Economic Strategy

South Korea’s bid for inclusion in the Morgan Stanley Capital International (MSCI) Developed Markets (DM) Index has been thwarted once again. Despite direct efforts by Deputy Prime Minister and Minister of Economy and Finance Koo Yooncheol to persuade the MSCI Group’s top executives, Korea ultimately failed to achieve the first milestone: being listed as a candidate for review. The government plans to include concrete improvement tasks, such as a roadmap for the internationalization of the won to address market accessibility issues highlighted by MSCI, in the mid-July announcement of its economic growth strategy for the second half of the year.

According to financial authorities and industry sources on June 23, MSCI’s annual market classification results to be announced in the early hours of June 24 will confirm that South Korea will remain in the Emerging Markets (EM) Index. As Korea was again excluded from the watch list this year, its challenge to join the MSCI Developed Markets Index has been postponed to June next year. To be included in the Developed Markets Index, a country must be designated as a market for review for at least one year. Even if South Korea succeeds in being designated as a market for review next year, the formal announcement of inclusion would be made in June 2027, with the actual inclusion taking place in June 2028.

The market capitalization of the domestic stock market has grown to become the sixth largest in the world (approximately KRW 7,450 trillion) on the back of a semiconductor rally and expectations for capital market reforms. Within the MSCI Emerging Markets Index, South Korea has overtaken China to become the second-largest country by weight after Taiwan. Despite this growth, the Korean stock market remains classified as an emerging market alongside Taiwan, China, India, and Brazil. The MSCI Developed Markets Index is composed of representative stock markets from 23 countries, including the United States and the United Kingdom, with Japan, Hong Kong, and Singapore representing Asia. After the domestic stock market was opened in 1992, South Korea was included in the MSCI Emerging Markets Index and was designated as a market for review in June 2008. However, its inclusion failed due to insufficient market accessibility, and it was ultimately removed from the watch list starting in 2014.

MSCI reportedly cited continued low market accessibility as the reason for Korea’s failure to be included in the index. A financial regulator explained, “While Korea sufficiently meets the quantitative evaluation criteria for developed markets, MSCI gives a low assessment in terms of market accessibility, particularly regarding won-denominated transactions.” In its annual market accessibility review released on June 19, MSCI acknowledged that there have been additional improvements related to the government’s recent foreign exchange and capital market modernization policies, but judged that the level of implementation in the market remains insufficient. Of 18 market accessibility criteria, MSCI maintained that five still require improvement.

Regarding the foreign exchange market liberalization item, which became a stumbling block this time, the structure of the foreign exchange market has been improved since 2023, with plans to operate the domestic market 24 hours a day from next month and to commence offshore won settlements starting January next year. The government, through the “Foreign Exchange Soundness Council and MSCI Developed Markets Index Inclusion Task Force,” a joint body formed by the Ministry of Economy and Finance and related agencies, aims to complete three additional tasks by the end of this month, bringing the total to 28 out of 39 tasks, or 70 percent. The Ministry of Economy and Finance recently held a working-level meeting of the “Won Internationalization Task Force” to accelerate the creation of a roadmap for internationalizing the won. The comprehensive roadmap, reflecting all improvement tasks for the internationalization of the won, is scheduled to be released as part of the economic growth strategy for the second half of the year, which will be announced in mid-July.

This content was produced with the assistance of AI translation services.