By Fabiana Negrin Ochoa
MSCI's latest index review was a win for Indonesia, which avoided a downgrade, but disappointed hopes that South Korea would be upgraded to developed status.
South Korea has been trying to secure a developed-market designation from MSCI for years, rolling out measures to improve market accessibility in areas such as accounts and settlement systems, English-language disclosures and derivatives.
Fellow index provider FTSE Russell has classified Korea as a developed market since 2009, but the Asian tech powerhouse has yet to win MSCI over.
In a review on Tuesday, MSCI acknowledged the steps taken by Korean authorities to address longstanding concerns. "However, investors have communicated that the underlying issues have not been fully resolved."
From 2008 to 2014, MSCI consulted with market participants about Korea's potential reclassification. They brought up accessibility issues such as the rigidity of the investor ID system, and restrictions on in-kind transfers and off-exchange transactions, but it was the won's limited convertibility offshore that emerged as a key barrier.
"The Korean won is not deliverable offshore," MSCI said. "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."
More needs to be done to convince international institutional investors that trading the won overnight in Korea will eventually provide deep, consistent pools of liquidity and tight bid-ask spreads akin to day trading in other developed-market currencies, it said.
Earlier this year, South Korea announced plans to operate its local foreign-exchange market around the clock from July, seeking to remove one of the stumbling blocks in its bid for an MSCI upgrade.
MSCI's decision reinforces the country's structural valuation ceiling, preserving the so-called Korea discount, said Christy Tan at Franklin Templeton Institute.
Despite chip-driven gains, the benchmark Kospi remains inexpensive relative to the Nasdaq and Japan's Nikkei. For Tan, the MSCI review highlights why.
"The central issue remains market accessibility," the global investment strategist said in a note. While Seoul has made progress in extending onshore forex trading hours, offshore convertibility remains restricted.
"Thin overnight liquidity still forces global investors and index replicators to manage currency exposure within narrow trading windows, limiting Korea's appeal as a fully scalable developed-market allocation," Tan said.
MSCI said it will continue to engage with market participants and Korean authorities, noting that reclassification consultations require all issues to have been addressed and reforms to be fully implemented.
Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com
(END) Dow Jones Newswires
June 24, 2026 01:58 ET (05:58 GMT)
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