South Korea Misses MSCI Developed Market Index Inclusion... Excluded from 'Watchlist'

MSCI Advanced Index Inclusion Virtually Fails

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] South Korea's inclusion in the Morgan Stanley Capital International (MSCI) Developed Markets Index was once again delayed this year. It was excluded from the 'Watchlist'?the preliminary step for MSCI Developed Markets inclusion.

On the 24th, MSCI announced in its '2022 Annual Market Classification Review (MSCI 2022 Market Classification Review)' that South Korea was not included in the Watchlist for inclusion in the Developed Markets Index. The MSCI global stock indices classify countries into Developed Markets (DM), Emerging Markets (EM), and Frontier Markets (FM). South Korea is currently classified as an Emerging Market (EM).

Since 2008 until June last year, South Korea has attempted to enter the MSCI Developed Markets Index four times but failed. To be included in the MSCI Developed Markets Index, a country must first be listed on the Watchlist. South Korea was included in the Watchlist in 2008 but has been excluded from the list since 2014.

Because of this, the South Korean government aimed to be listed on the Watchlist this year. If included in the Watchlist this time, the promotion decision would be made in 2023. The actual inclusion was planned for 2024. However, failing to be listed on the Watchlist means South Korea has faced rejection for the fifth time in MSCI inclusion.

This outcome was considered expected. On the 10th, MSCI disclosed the results of the country-specific 'Market Accessibility Assessment,' which checks basic conditions, on its website. MSCI pointed out in the assessment ▲lack of information accessibility for foreign investors (such as English IR) ▲restrictions on access to domestic and foreign foreign exchange markets ▲limited short selling allowed only for KOSPI 200 and KOSDAQ 150 companies.

Yeom Dong-chan, a researcher at Korea Investment & Securities, said, "South Korea still faces many hurdles to be classified as an MSCI Developed Market," adding, "To improve foreign investors' information accessibility as required by MSCI, amendments to the Capital Markets Act are necessary to mandate English disclosures, and to change the dividend payment process, amendments to the Commercial Act are required."