South Korea Again Misses MSCI Watch List for Developed-Market Status

South Korea’s bid to join MSCI’s developed-market ranks has fallen short again. Despite government efforts to improve market rules, including foreign-exchange market reforms and the resumption of short selling, global investors still view market access and trading convenience as below developed-market standards.

MSCI, in its 2026 annual market classification review released on June 23, did not place South Korea on its watch list, the first step toward inclusion in the index provider’s developed-market index.

The index provider said it recognizes steps announced by South Korean market authorities to address long-standing concerns. Investors, however, indicated that fundamental issues have not been fully resolved.

MSCI specifically pointed to the considerable operational burden facing market participants under the reintroduced compliance framework. That suggests new rules and oversight following the lifting of the short-selling ban are still complicating trading operations for foreign investors.

Foreign-exchange market access was also cited as a key shortcoming. MSCI said onshore liquidity during South Korea’s extended FX trading hours is generally not sufficient to support tight order execution in line with developed-market standards.

MSCI also reiterated that the won is not deliverable offshore. It said the Korean currency lacks an offshore settlement market and that restrictions remain in the onshore foreign-exchange market.

The South Korean government has pursued a series of reforms, including changes to the FX market structure, broader access for foreign financial institutions to the domestic FX market, longer trading hours, expanded English-language disclosures and the resumption of short selling. MSCI said more time is needed to assess whether those measures have brought trading conditions for international institutional investors up to developed-market standards.

MSCI indexes are widely used by global institutional investors as a guide for overseas investment. The firm classifies markets as developed, emerging or frontier based on market size and institutional conditions.

A market must first be added to the watch list before it can be upgraded from emerging to developed status. It must remain there for at least one year before a final promotion can be considered. South Korea was on the watch list from 2008 to 2014, but was later removed and has not reentered the candidate pool since.

Kang Kyung-ju, Hankyung.com reporter qurasoha@hankyung.com