South Korean Stock Market Fails to Be Named to MSCI Developed Market Watchlist

▲ MSCI (Morgan Stanley Capital International)

South Korea's stock market has once again failed to be included in the Morgan Stanley Capital International (MSCI) Developed Market (DM) index.

In its 2026 Annual Market Classification Review released on June 23 (local time), MSCI decided not to place the South Korean stock market on its watchlist for developed market status, citing, among other factors, that the conversion of the Korean won remains restricted in offshore foreign exchange markets.

MSCI stated, "We acknowledge the measures announced by the Korean market authorities to address long-standing concerns," but added, "However, investors have responded that the fundamental issues have not been fully resolved."

MSCI pointed out that "the Korean won is not physically deliverable offshore."

This means that the won is a currency that cannot be settled through the physical exchange of currency in international foreign exchange markets outside of Korea.

Currently, trading of the won in offshore markets is primarily conducted through Non-Deliverable Forwards (NDF), where only the difference is settled in U.S. dollars rather than through physical delivery.

MSCI assessed that although trading hours for the won in the onshore foreign exchange market have been extended into the night, liquidity remains insufficient, which continues to limit the flexibility of foreign exchange operations for index fund managers.

Regarding the full resumption of short selling since March of last year, MSCI also noted that market participants are facing significant operational burdens under the newly introduced market surveillance regulatory framework.

MSCI stated, "For consultations on a potential market reclassification to take place, all raised issues must be resolved, reforms must be fully implemented, and market participants must have sufficient time to fully evaluate the lasting effects of these changes."

MSCI, a global index provider, classifies stock markets around the world into developed, emerging, frontier, and standalone markets.

Currently, 23 countries, including the United States, Japan, and the United Kingdom, are in the developed market index, while South Korea is classified in the emerging market index alongside countries such as China and India.

South Korea was first included in the emerging market index in 1992 and was named to the watchlist for developed market status for the first time in 2008, 16 years later.

However, MSCI repeatedly deferred South Korea's promotion to the developed market index, citing difficulties in converting the won and restrictions on the use of exchange data, and in 2014, it removed South Korea from the watchlist entirely.

(Photo: Screenshot of MSCI website, Yonhap News)

※