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

South Korea’s push to join the ranks of developed equity markets has fallen short again. While the government has moved to open the foreign-exchange market and resume short selling, global investors still view the market’s accessibility and trading convenience as below developed-market standards.

Morgan Stanley Capital International said in its 2026 annual market classification review released on June 23 that it did not add South Korea to its watch list, the first step toward inclusion in the developed-markets index.

MSCI said it recognized measures announced by South Korean market authorities to address long-standing concerns. Even so, investors indicated that underlying issues have not been fully resolved.

MSCI highlighted the operational burden facing market participants under the reinstated compliance framework. The comment suggests that new rules and oversight introduced after the short-selling ban was lifted are weighing on the day-to-day trading operations of foreign investors.

Foreign-exchange market access was also cited as a key weakness. MSCI said onshore liquidity during South Korea’s extended FX trading hours is generally insufficient to support the tight order execution expected in developed markets.

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

The South Korean government has pushed a series of reforms, including changes to the foreign-exchange market structure, broader participation by foreign financial institutions in the domestic FX market, longer trading hours, expanded English-language disclosures and the resumption of short selling. MSCI said more evidence is needed to determine whether those steps have lifted trading conditions for international institutional investors to developed-market standards.

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

To move from emerging-market to developed-market status, a country must first be placed on the watch list. It must remain there for at least one year and undergo review before a final upgrade can take place. South Korea was on the watch list from 2008 to 2014, but was later removed and has yet to re-enter the candidate pool.

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