MSCI keeps South Korea at emerging market status, cites FX accessibility

Global index provider MSCI kept South Korea in its emerging-market category, citing long-standing accessibility issues related to the onshore foreign exchange market in its annual market-classification review. 

"The Korean won is not deliverable offshore. Even more concerning, onshore liquidity during the extended FX trading hours remains largely insufficient to support tight execution at standards comparable to those observed in developed markets, constraining FX operational flexibility for index replicators and others," the index provider said in a statement. 

MSCI acknowledged reforms sought by Korean authorities to address the accessibility issue, but said market participants would need time to "thoroughly evaluate the sustained effectiveness of the changes."

"Our understanding is that South Korea was not included in a watch-list this year because some improvements are still being made and it also needs more time for the effects to be felt on completed tasks," South Korea's finance ministry and financial regulatory agency said in a joint statement. 

"We expect the inclusion in MSCI developed market index will naturally follow if we continue to pursue foreign exchange and capital market reforms based on our own needs and schedule," they said.

The government of President Lee Jae Myung has brought in various market reforms since taking office in June 2025, including plans to open up the foreign exchange market around the clock from the second half of this year to win developed-market status as its flagship goal.

The index provider removed South Korea from its developed-market watchlist in 2014, citing restrictions on foreign exchange transactions and other accessibility issues. 

The benchmark KOSPI .KS11 has doubled in value in the past year to become the world's best-performing stock index thanks to the stellar performance of chipmakers amid the buildout of artificial intelligence infrastructure. 

"The market impact is limited because there were negative assessments in five criteria in last week's annual market accessibility review, establishing a 'no inclusion' scenario as the base case," said Han Ji-young, an analyst at Kiwoom Securities.

The KOSPI rebounded more than 3 percent on Wednesday, after the index plummeted nearly 10 percent on Tuesday to log the sharpest daily decline since March.

Reuters

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