MSCI Rejects S. Korea for Developed Market Status

Global index provider MSCI has maintained South Korea's classification as an emerging market in its latest annual review, citing longstanding issues with onshore foreign exchange market accessibility. The won's offshore non-deliverability and insufficient onshore liquidity during extended trading hours were key concerns for MSCI, impacting the operational flexibility required for index replication.

While acknowledging recent reform efforts by South Korean authorities, MSCI stated that market participants require further evaluation of the sustained effectiveness of these changes. The finance ministry indicated that South Korea was not placed on a watch-list this year as improvements are ongoing and their effects need to materialize. Authorities are committed to continuing foreign exchange and capital market reforms to achieve developed market status.

The South Korean government, under President Lee Jae Myung, has prioritized gaining developed market status, implementing reforms such as plans to open the foreign exchange market around the clock from the second half of 2026. This is a significant goal for the administration. The KOSPI index, meanwhile, has experienced remarkable growth, doubling in value over the past year, largely driven by the performance of chipmakers contributing to artificial intelligence infrastructure buildout.

Analysts suggest the market impact of MSCI's decision is limited, as a 'no inclusion' scenario was anticipated following negative assessments in five market accessibility criteria. The KOSPI experienced a sharp decline of nearly 10% on Tuesday, its steepest daily drop since March, but rebounded more than 3% on Wednesday.