South Korea's stock market again fails to join MSCI developed markets index

South Korea's stock market has missed out on its long-sought inclusion in the MSCI developed markets index for 2026, marking another disappointment in its decades-long pursuit of an upgraded status. The decision by Morgan Stanley Capital International (MSCI) was announced following its annual market classification review.

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Investors have responded that the fundamental problems have not been completely resolved.

MSCI cited persistent concerns regarding foreign exchange market accessibility as the primary reason for deferring South Korea's reclassification. While acknowledging recent measures taken by Korean authorities, MSCI noted that investors still perceive fundamental issues as unresolved. A key point of contention remains the won's limited offshore convertibility, meaning it cannot be physically settled in international forex markets outside of Korea.

Although the trading hours for the won in the onshore market have been extended into the night, MSCI found that liquidity remains insufficient, constraining the flexibility of index fund managers. Furthermore, the review pointed to operational burdens faced by market participants under the newly implemented market surveillance system, particularly concerning the reintroduction of short-selling.

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The won cannot be delivered offshore.

MSCI emphasized that for any potential reclassification to be considered, all raised issues must be resolved, reforms fully implemented, and sufficient time must pass for market participants to assess the sustained impact of these changes. South Korea has been attempting to join the developed markets index since 2008, having been classified as an emerging market since 1992. The potential influx of foreign capital associated with developed market status is seen as crucial for stabilizing the Korean stock market, which has historically shown vulnerability to foreign capital outflows.

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For potential market reclassification to be discussed, all raised issues must be resolved, reforms fully implemented, and market participants must have sufficient time to fully assess the sustained effects of the changes.