MSCI Keeps South Korea Emerging, Extends Indonesia Review to November

Q: What is the single biggest barrier preventing South Korea's $5 trillion market from developed status?

The biggest obstacle is South Korea’s foreign-exchange regime, especially the limited offshore convertibility of the won and related FX trading restrictions. MSCI’s repeated concern is not South Korea’s economic size or stock-market liquidity, but market accessibility for global institutional investors. In its latest review, MSCI pointed to the won’s limited convertibility in offshore markets and insufficient onshore liquidity during extended FX trading hours as falling short of developed-market standards. Those restrictions make it harder and costlier for foreign investors to move money in and out efficiently and hedge currency risk. Other issues remain, including compliance burdens tied to the restored short-selling regime, limited use of omnibus accounts and in-kind transfers, and pre-settlement funding requirements. But the FX issue is the central sticking point and the one most consistently cited over the years. That is why recent reforms, while positive, were not enough for an upgrade. MSCI’s position is that reforms must not only be announced but also fully implemented and shown to work durably in practice before South Korea can be considered for developed-market status.

3 articles · Updated · CNBC · Jun 23

MSCI left South Korea in the emerging-market category and delayed a decision on Indonesia until November in its latest market-accessibility review.
South Korea missed a hoped-for step onto MSCI’s developed-markets watchlist because offshore won convertibility remains limited, with investors saying recent reforms have not fully fixed the issue.
Indonesia’s review was extended after MSCI earlier flagged market-accessibility problems and froze Indonesian stocks from its indexes in January over investability concerns.
MSCI said it will keep assessing Jakarta’s reforms and could consider options up to a downgrade to frontier-market status if the measures prove insufficient.
For Seoul, the decision is a setback to a long-running push for developed-market status that analysts say could help narrow the “Korea discount” on its stocks.