South Korea Misses Out on MSCI Developed Market Index Watchlist Again

South Korea's aspiration to join the ranks of developed markets has been dashed as its stock market was not included in the MSCI's observation list for potential inclusion in the developed market index.

In its 2026 annual market classification review, MSCI acknowledged the efforts of South Korean market authorities to address concerns but stated that fundamental issues remain unresolved. Key among these were the Korean won's status as a currency not freely convertible in international foreign exchange markets, insufficient won liquidity even with extended trading hours, limitations on the use of consolidated foreign investor accounts, and the practice of requiring advance payment for stock purchases.

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We recognize the measures announced by the Korean market authorities to address concerns, but fundamental issues have not yet been fully resolved.

This decision means that the anticipated large-scale capital inflows and currency stabilization benefits associated with inclusion in the MSCI developed market index will not materialize in the near future. South Korea was previously on the observation list from 2008 but was removed in 2014.

Despite the setback, the immediate reaction in the financial markets was relatively subdued. The exclusion was somewhat anticipated following MSCI's earlier assessment in late May that South Korea's foreign exchange and capital market reforms were insufficient. The Kospi index closed up 3.26% on the day, recovering from a previous day's decline, and the won-dollar exchange rate showed a modest increase. Financial authorities expressed their commitment to continuing market reforms, believing that natural inclusion in the developed index will follow sustained improvements.

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We expect that if we consistently pursue foreign exchange and capital market reforms according to our own needs and schedule, we will naturally be included in the MSCI developed index.