Korean Stock Market Fails to Join MSCI Developed Markets Index... 'Short Selling Ban' as Obstacle

Announcement of the '2024 Annual Market Classification Results'
Korean Stock Market in Emerging Markets Remains Unchanged
Government's November Short Selling Measures Directly Mentioned Last Year

Excerpt from the section mentioning the Korean stock market in MSCI's "2024 Annual Market Classification" released on the 20th (local time). Source: MSCI website

South Korea's inclusion in the Morgan Stanley Capital International (MSCI) Developed Markets (DM) index has once again failed. The cause is the short-selling ban imposed by the government in November last year.

On the 20th (local time), MSCI announced the results of the "2024 Annual Market Classification" on its website. There were no changes related to the Korean index, which currently belongs to the Emerging Markets (EM) category.

MSCI stated, "We continue to monitor the implementation of measures to improve accessibility to the Korean stock market for foreign investors, while noting that the recent short-selling ban has restricted market accessibility."

Specifically, MSCI acknowledged and welcomed the recently proposed measures to improve accessibility to the Korean stock market but pointed out that "although the full ban on short selling implemented last November is expected to be temporary, sudden changes in market rules are undesirable."

Furthermore, MSCI explained, "For a potential reclassification, all issues must be resolved, improvement measures fully implemented, and market participants must have sufficient time to thoroughly assess the effects of the changes."

To be included in MSCI's Developed Markets index, a candidate country must be on the watchlist for at least one year. Since South Korea was not included in the candidate list this time, its challenge to join the Developed Markets index has been postponed to the next opportunity in June next year. If it enters the watchlist in June next year, the official inclusion announcement will be made in June 2026, with actual inclusion in June 2027.

Concerns that South Korea's inclusion in the MSCI Developed Markets index is unlikely have been raised previously. This is because, in MSCI's market accessibility assessment announced earlier this month, the Korean stock market received additional negative evaluations related to "short selling" compared to last year. Out of 18 categories, seven received a "negative (needs improvement)" rating, worsening from six previously.

MSCI classifies major global stock markets annually into Developed Markets, Emerging Markets, Frontier Markets, and Standalone Markets. These classification criteria are used by global institutional investors to determine investment fund allocations, influencing national capital flows. South Korea has been classified as an Emerging Market since 1992, was listed as a candidate for promotion to Developed Market status in 2008, but was removed from the watchlist in 2014.