On June 23, MSCI announced its annual market classification results for 2026, stating that Korea would not be included in the watchlist for developed market status. As a result, Korea remains classified as an emerging market alongside China and India.
While MSCI acknowledged the regulatory improvements made by Korean market authorities, it noted that global institutional investors believe fundamental issues have not been fully resolved.
The primary obstacle is the issue of won trading. MSCI pointed out that the won is not traded in a physical delivery manner in offshore markets, making it difficult to settle transactions in the international foreign exchange market. Currently, the won is mainly traded in the form of non-deliverable forward (NDF) contracts.
The extension of trading hours in the domestic foreign exchange market was also not seen as a sufficient improvement. MSCI stated, "The lack of liquidity for won trading during nighttime hours still limits the operational flexibility for index fund managers and other investors tracking the index."
Regarding the resumption of short selling, MSCI's evaluation was cautious. It stated, "Market participants are experiencing significant operational burdens under the newly introduced compliance and monitoring system." The use of omnibus accounts and the physical transfer system was deemed 'limited.'
MSCI emphasized that discussions on Korea's market reclassification should only begin once all identified issues are resolved and reform measures are fully implemented. It also noted that market participants need sufficient time to verify the effects of these regulatory changes.
MSCI classifies global stock markets into developed, emerging, frontier, and standalone markets. Market classification serves as a benchmark for global passive investment funds, meaning the decision on Korea's inclusion in the developed market index will impact foreign capital inflows and the evaluation of the domestic stock market.
Korea was included in the MSCI emerging market index in 1992. It was placed on the watchlist for potential inclusion in the developed market index in 2008 but failed to achieve this status due to currency exchange restrictions and market accessibility issues. It was removed from the watchlist in 2014.
With this announcement, discussions regarding Korea's inclusion in the developed market index will be postponed at least until the next annual market classification.
* This article has been translated by AI.
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