Korean Stock Market Fails in 12th Attempt to Join MSCI Developed Markets Index... Will It Make the Watch List Next Year? (Comprehensive)

MSCI Releases Annual Market Classification... Korea Remains an Emerging Market

"Authorities' Measures Recognized... Fundamental Issues Remain Unresolved"

Expectations Rise for Meaningful Improvement in Foreign Exchange Market Access in the Second Half

South Korea's attempt to be included in the Morgan Stanley Capital International (MSCI) Developed Markets (DM) Index has once again ended in failure. Not only did Korea fail to make it onto the watch list, the preliminary step for inclusion, but this marks the 12th unsuccessful attempt since being removed from the watch list in 2014. However, in the market, there is mention of a potential re-inclusion in the watch list next year, as the government’s planned institutional reforms, such as the expansion of the foreign exchange market opening, are proceeding as scheduled. Following a nearly 10% plunge the previous day, which reflected the anticipated MSCI news and subsequent market correction, the Korean stock market was rebounding on June 24.

“Issues such as offshore won trading restrictions remain unresolved”

In its 2026 annual market classification results released on the morning of June 24, 2026, Korea Standard Time, MSCI maintained South Korea's classification as an Emerging Market (EM), as before. While MSCI acknowledged the measures announced by Korean financial authorities to address long-standing concerns, it explained that “investors responded that fundamental issues have not been completely resolved.”

Specifically, MSCI pointed out the limited conversion of the Korean won in the offshore foreign exchange market. “Market participants identified the restricted convertibility of the won in the offshore foreign exchange market as a major barrier to reclassification,” MSCI stated, adding, “The Korean won cannot be delivered offshore.” Despite the extension of foreign exchange trading hours, concerns persisted regarding the insufficient liquidity of the onshore market compared to developed markets. The limited practical usage of omnibus accounts and the securities transfer system also remain areas for improvement.

Previously, in its annual market accessibility review, MSCI gave Korea’s stock market a “minus” (needs improvement) rating in 5 out of 18 evaluation categories: foreign exchange market liberalization, investor registration and account opening, information flow, clearing and settlement, and securities mobility. The only category upgraded from minus to plus last year was the availability of investment products.

Each year, MSCI classifies major global stock markets as developed, emerging, frontier, or standalone markets. Since 1992, South Korea has been included in the emerging markets index. It made it onto the watch list, the preliminary step toward developed market status, in 2008, but was repeatedly denied an upgrade due to insufficient market accessibility, and was eventually removed from the watch list in 2014.

Nevertheless, despite the news of failing to be included in the watch list, as of 10:00 a.m. on June 24, the KOSPI was trading at 8,504.43, up 3.66% from the previous trading day. At the same time, the KOSDAQ was up 2.27% at 911.74. Analysts attribute this to the market having already priced in the difficulty of being included in the MSCI Developed Markets Index during the previous day’s sharp decline, and to investors viewing the short-term correction as a buying opportunity. The previous day, the KOSPI had experienced a dramatic 9.99% drop, the fifth-largest decline in KOSPI history.

According to Kiwoom Securities, an analysis of the top 10 historical declines in the KOSPI shows that, on average, the index rose 6.9% five trading days after a crash, 7.8% after twenty trading days, and 24.6% after sixty trading days. Currently, the rebound in the KOSPI is being led by large-cap stocks. As of 10:01 a.m., Samsung Electronics was trading at 333,000 won, up 7.50% from the previous session, and SK hynix was up 3.56% at 2,646,000 won.

“There is hope for next year,” says the securities industry

Despite this year’s setback, there is growing optimism both inside and outside the securities industry regarding the likelihood of being added to the watch list next year. According to the roadmap of the Lee Jaemyung administration, many of the quantitative requirements demanded by foreign institutions—such as the abolition of foreign investor registration and the phased expansion of mandatory English disclosures—have been largely completed in the first half of the year. Moreover, the most significant issue repeatedly raised by MSCI, “improving access to the foreign exchange market,” is set to be addressed in earnest during the second half.

First, after a pilot period, the government plans to transition to a 24-hour won-dollar foreign exchange market starting July 6, 2026. Except for Saturdays, Sundays, and January 1, it will be possible to trade won and dollars even on holidays such as Chuseok and Christmas. This will significantly improve the convenience for both retail foreign investors and foreigners wishing to invest in Korean stocks or bonds.

Furthermore, starting next year, the “offshore won settlement network” will be implemented in earnest, allowing foreign financial institutions to open won accounts in Korea and directly transact in won. Currently, the Korean foreign exchange market recognizes won-dollar spot settlements only in the onshore market. Offshore financial institutions may participate upon approval as a Registered Foreign Institution (RFI), but they must entrust the related work to a domestic foreign exchange bank. However, with the launch of the offshore settlement network, 24-hour local won settlements will be possible through the Bank of Korea’s payment system. As a pilot operation is scheduled to begin in September, MSCI is also expected to closely monitor this development.

Additionally, with the government set to release the “roadmap for the internationalization of the won” in the second half of this year, additional measures to drastically improve foreign investors’ access to the won could be announced. If the issues raised by MSCI, such as the liquidity of the onshore foreign exchange market, are also addressed, the outlook for future evaluations is expected to improve.

Shin Jungho, head of research at LS Securities, commented, “MSCI tends to make decisions after confirming policy changes. There is a possibility that Korea will be designated as a watch list country in 2027, if policy changes proceed according to the government’s roadmap.” Lee Jaewon, a researcher at Yuanta Securities, added, “We are optimistic about the 2027 review, when the activation of the offshore foreign exchange market will be in full swing.” To be included in the developed markets index, Korea must first spend at least one year on the watch list, then undergo a formal index inclusion process, and finally complete the three-step procedure for actual inclusion.

On the other hand, a high-ranking official at a securities firm who requested anonymity cautioned, “It may not be easy next year either. Being added to the watch list does not guarantee inclusion in the developed markets index.” The official emphasized the need to expand the institutional investor base and improve regulations, including tax policies. Namwoo Lee, Chairman of the Korea Corporate Governance Forum, also said, “While the government has taken all the necessary measures regarding foreign exchange, what matters is successful implementation in the field. The government should pursue capital market reform with consistency.”

The Ministry of Economy and Finance and the Financial Services Commission stated in a joint announcement on the morning of June 24, 2026, “If we consistently pursue reforms of the foreign exchange and capital markets according to our own needs and schedule, we will naturally be included in the MSCI Developed Markets Index. We will continue to monitor the actual implementation of improvements and incorporate on-site feedback.”

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