Korean Stock Market Fails Again to Join MSCI Developed Market Index... Not Added to Watchlist

Maintained in the Emerging Market Index in the 2026 Annual Classification
"Fundamental Issues Remain Unresolved, Including Limited Offshore Won Trading"

Korea's inclusion in the Morgan Stanley Capital International (MSCI) Developed Markets (DM) Index has once again failed to materialize. Korea was also not added to the watchlist, which is the list of candidate countries for inclusion in the Developed Markets Index.

On June 23 (local time), MSCI announced the results of its 2026 Annual Market Classification and continued to classify Korea as an Emerging Market (EM), the same as before. MSCI stated, "We acknowledge the measures announced by the Korean financial authorities to address long-standing concerns," but explained the background for the classification by adding, "However, investors responded that the fundamental issues have not been fully resolved."

Specifically, MSCI highlighted the limited ability to exchange the Korean won in the offshore foreign exchange market. The company pointed out, "Market participants identified the limited convertibility of the won in offshore FX markets as a major obstacle to reclassification," and added, "The Korean won cannot be delivered offshore."

Furthermore, MSCI noted, "A more concerning issue is that even after the extension of Korea's FX trading hours, onshore liquidity is still insufficient to support seamless trading execution at the standards observed in developed markets," emphasizing, "There must be confidence that the market will offer a liquidity pool of sufficient size, depth, and stability—comparable to the weekly trading hours of other developed market currencies—and that bid-ask spreads will be narrow."

Additionally, it was mentioned that the actual utilization of omnibus accounts and the real asset transfer system remains limited. Regarding the lifting of last year's short-selling ban, market participants reportedly continue to experience significant operational burdens due to the newly introduced market surveillance regulations.

MSCI stated, "For discussions on potential market reclassification to take place, all raised issues must be resolved, reforms must be fully implemented, and market participants must be given enough time to adequately assess the sustained impact of these changes."

Every year, MSCI classifies major global stock markets as Developed, Emerging, Frontier, or Standalone markets. These classifications serve as a key basis for global institutional investors when determining the size of their investments, thereby influencing capital flows into each country.

In response, the Lee Jaemyung administration announced the "Comprehensive Roadmap for Foreign Exchange and Capital Markets for Inclusion in the MSCI Developed Market Index" at the start of the year and has pursued eight key initiatives, including abolishing the foreign investor registration system, expanding English-language disclosures, and opening up the FX market. To be included in the Developed Market Index, Korea must first be listed as a watchlist country for more than one year. Korea has been classified as an Emerging Market since 1992. In 2008, Korea was added to the watchlist, the step before inclusion in the Developed Market Index, but failed to remain on the list due to insufficient market accessibility. Ultimately, Korea was removed from the watchlist in 2014.

In the annual market accessibility review released by MSCI on June 19, the Korean stock market still received negative (improvement needed) assessments in five out of 18 criteria: level of FX market liberalization, investor registration and account opening, information flow, clearing and settlement, and securities transfer. The only area upgraded from negative to positive over the past year was the availability of investment products.

At the time, MSCI commented, "Based on measures such as the launch of the 24-hour FX market and the trial operation of offshore won settlement networks implemented this year to align the FX system with global practices, further plans have been established." However, MSCI also noted, "A fully operational offshore FX market has yet to be established."

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