The index provider MSCI has once again maintained South Korea's classification as an emerging market. The company's chief executive stated on Thursday that a core obstacle is preventing the country's upgrade to developed market status.
"From the perspectives of its economy, technology, and societal development, South Korea is among the most advanced economies globally," said Henry Fernandez, CEO of MSCI Inc, during an appearance on the 'Squawk Box Europe' program. "However, the core of our assessment is the operational framework of the stock market. From this dimension, the Korean capital market still exhibits many characteristics typical of an emerging market."
The Korea Composite Stock Price Index (KOSPI), home to global tech leaders like Samsung and SK Hynix, delivered the best performance among major global indices in 2025 and has surged 112% year-to-date in 2026.
Fernandez identified foreign exchange controls on the Korean won as the primary factor hindering the market's reclassification.
"When investing in stocks in all developed markets like the UK, France, Germany, Japan, and the US, investors can first convert their currency, buy the stock, and then convert the proceeds back at their convenience, operating from any global financial center like London, New York, Frankfurt, or Tokyo," he explained. "But in Korea, investors cannot conduct such free transactions."
"The won can only be converted during the local daytime trading session in Seoul," Fernandez noted. This restriction makes it difficult for index fund managers with Korean equity allocations to adjust positions and balance their portfolios flexibly. He added that index funds account for about one-third of all assets tracking various indices globally.
Fernandez acknowledged that South Korea has made significant progress in financial system reforms, but stated the issues extend beyond trading hours, with liquidity in the won forex market also being a concern.
"We always need to confirm a fundamental prerequisite: all developed markets globally allow their currency to be traded around the clock, anywhere in the world. If South Korea intends to rely on night-time forex trading to facilitate won transactions for investors in London or New York, we must verify whether the market has sufficient liquidity and tight bid-ask spreads. We still have doubts on this front."
MSCI's Global Market Classification Review
Earlier this week, MSCI released its annual market classification review, keeping South Korea in the emerging market category. The market was disappointed as it had hoped the country would at least be placed on the watch list for a potential upgrade to developed market status, a necessary precursor to such a move.
MSCI also listed several other reasons for denying the upgrade: a rigid investor identification system, restrictions on physical asset transfers and over-the-counter transactions, and limitations on the variety of investable financial products due to rules governing the use of exchange data.
"Global investors have provided feedback indicating these fundamental market accessibility issues have not been fully resolved," MSCI stated.
South Korea plans to officially launch a 24-hour spot foreign exchange market for the US dollar-won pair on July 6.
However, Fernandez commented in his Thursday interview, "South Korea has a history of achieving reform miracles. Even if this mechanism is successfully launched, we still have to question whether the won market at 2 AM will have sufficient depth and liquidity to support large, smooth transactions. This is a very difficult challenge."
For a long time, Seoul has sought inclusion in MSCI's developed market indices. In the classification system of its rival FTSE Russell, South Korea is already categorized as a developed market.
Earlier this year, the total market capitalization of the KOSPI surpassed that of London's FTSE 100, making it the world's eighth-largest national stock index by market value.
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