South Korea Again Misses MSCI Developed-Market Watch List

FX Market Access Still a Key Hurdle

South Korea has again failed to secure inclusion in MSCI’s developed-market index, with Morgan Stanley Capital International citing shortcomings in access to won trading and regulations overseeing short selling.

In its 2026 Annual Market Classification Review released on June 23, MSCI did not place South Korea’s stock market on the watch list for its developed-market index.

South Korea has been a member of the MSCI Emerging Markets Index since 1992. The government has since consistently pursued inclusion in the developed-market index, which tends to draw more passive foreign capital. NH Investment & Securities estimates that membership would bring in $29.2 billion in passive inflows.

Foreign-exchange market access, long cited as a major obstacle, again proved to be a sticking point. MSCI said the won is not deliverable offshore. The remark was interpreted as referring to the fact that offshore won trading is effectively limited to non-deliverable forwards, or NDFs, where only the difference is settled in dollars.

MSCI also said liquidity in South Korea’s onshore overnight foreign-exchange market remains far below that of developed markets. The assessment suggests overnight won trading is still not operating smoothly even after market hours were extended from 3:30 p.m. to 2 a.m. the following day nearly two years ago.

MSCI also said the regulatory framework introduced after financial authorities fully resumed short selling last year is imposing operational burdens on investors. The comment was seen as an indirect reference to real-time naked short-selling monitoring systems such as the NSDS. A financial industry official said the assessment appeared to reflect South Korea’s history of volatility in short-selling rules.

MSCI also pointed to the limited use of omnibus accounts by foreign investors. Rules requiring settlement funds to be deposited in advance are restricting foreign access, it said.

Markets are now focused on whether the government’s foreign-exchange market reform measures will deliver tangible results. Key measures include the planned 24-hour opening of the foreign-exchange market from July and the launch of a full-fledged offshore won settlement network in 2027.

Shim Woo-il, Hankyung.com reporter goodwill@hankyung.com