MSCI Advanced Markets Watchlist Missed... "Korea's Rating Adjustment If Institutional Improvements Implemented"

MSCI Announces Global Market Accessibility Assessment Report

[Image source=Reuters Yonhap News]

The Korean stock market failed to be listed as a watchlist country for inclusion in the Morgan Stanley Capital International (MSCI) Developed Markets index. MSCI evaluated the Korean stock market as an "Emerging Market" and stated that it would adjust the classification once the improvement measures for inclusion in the Developed Markets index are fully implemented.

According to the "2023 Market Accessibility Review Results" announced by MSCI on the 9th, Korea was classified as an Emerging Market (EM) as it was last year. Out of the 18 evaluation criteria for the Korean market, 6 were maintained as "negative" (requiring improvement). This is interpreted as MSCI planning to re-evaluate after confirming that the market improvement systems announced by the Korean government have been established.

MSCI has five market evaluation criteria, including openness to foreign investors and free capital flow, which are further divided into 18 detailed sub-items for scoring. While Korea has met the conditions related to economic size and stock market size for inclusion in the MSCI Developed Markets index, market accessibility for foreign investors has been evaluated as insufficient.

In this report, MSCI stated about the Korean market, "Disclosure of information in English has improved but is not always easily accessible," and added, "Once the mandatory English disclosure policy is fully implemented, we will evaluate its impact on international institutional investors."

It also noted, "There is no offshore foreign exchange market, and restrictions on the onshore foreign exchange market continue," and said, "We will examine the impact once the Ministry of Strategy and Finance's foreign exchange market structure improvement plan is fully implemented." Furthermore, MSCI added that it would re-evaluate the foreign investor registration system and corporate dividend disclosure once the related institutional improvements are fully implemented.

The Korea Exchange commented, "The contents of the MSCI report are parts that have been continuously mentioned," and said, "MSCI has consistently stated that if institutional improvement efforts are implemented and settled, inclusion in the Developed Markets index will follow."

They further emphasized, "The report does not evaluate that there has been a significant change in market accessibility compared to last year, so it seems difficult for Korea to be included in the watchlist this year. However, it reflects Korea's improvement efforts and shows hope that if institutional improvements are implemented, Korea could enter the watchlist."

Han Ji-young, a researcher at Kiwoom Securities, explained, "Expectations that Korea could be listed on the MSCI Developed Markets watchlist this year have diminished, but additional foreign exchange market liberalization, improvements in dividend procedures, enhanced accessibility for foreign investors, and changes such as improvements in the share repurchase system to be implemented in the second half of the year were positively evaluated."

She added, "If the policy effects appear with a time lag, inclusion in the Developed Markets index could be achieved later, so the foreign investors' 'Buy Korea' stance will not be undermined."

Meanwhile, MSCI is scheduled to announce the annual market reclassification results on the 22nd at 10:30 PM (Korean time: 5:30 AM on the 23rd).