11 hours ago
MSCI sees limited progress in Korea's market accessibility
Lagging FX liberalization, scarce English disclosures dampen Korea's prospects for developed market status
Korea's investment barriers for foreign investors remain in place despite recent foreign exchange market reforms, Morgan Stanley Capital International said Friday, casting doubt on the country's prospects for an upgrade in MSCI's index system.
In its 2025 Global Market Accessibility Review, released ahead of next week's annual market reclassification announcement, MSCI acknowledged that Korea has implemented 'a series of foreign exchange market reforms,' including allowing global financial institutions to participate in the onshore interbank forex market and extending trading hours to 2:00 a.m. to better align with global time zones.
'Despite these reforms, the registration process continues to face operational hurdles. Moreover, the limited usage of omnibus accounts and over-the-counter transactions has constrained the impact of related regulatory initiatives,' MSCI said.
The Korean stock market received a minus rating, indicating improvement is required, in six of the 18 assessment categories, down from seven last year.
The decline reflects an upgrade in short-selling accessibility, which was raised to plus following the March 2025 resumption of short-selling activity.
'The ban on short selling was lifted for all Korean-listed securities. MSCI will continue to monitor developments to assess the stability of the regulations over time,' the index provider said.
Despite progress, MSCI noted that key hurdles remain in areas such as foreign exchange liberalization, investor registration and account setup, clearing and settlement systems, and the availability of investment products.
The firm also pointed out persistent shortcomings in corporate disclosure practices.
'Company-related information is not always readily available in English,' it said, referencing the ongoing phased rollout of mandatory English-language disclosures initiated in 2023.
Korea remains classified in the MSCI Emerging Markets Index. To be upgraded to Developed Market status, a country must first be placed on MSCI's watch list for at least one year.
Market optimism had grown that Korea might be added to the watch list this year, fueled by a more than 20 percent rally in the Kospi, driven by a retail buying surge and the new administration's push for shareholder-friendly reforms.
But MSCI's latest review has tempered those expectations.
Goldman Sachs projected that if Korea is added to the watch list, it could be upgraded to Developed Market status by 2026, potentially attracting around $30 billion in capital inflows.
'Inclusion on the watch list seems to be challenging this time,' said Seo Sang-young, a researcher at Mirae Asset Securities. 'What matters more than early inclusion is ensuring the Korean market is prepared and attractive through strong corporate fundamentals and improved accessibility to draw greater capital inflows from global investors.'
