MSCI: Short Selling Accessibility Improves in Korean Stock Market, but Foreign Investor Access Still Restricted

Morgan Stanley Capital International (MSCI) stated on June 20 that the accessibility of short selling in the Korean stock market has improved, following the resumption of short selling transactions in March 2025. However, MSCI also noted that foreign investors still face restrictions in accessing the market and emphasized the need for further improvements.

In its annual market accessibility review, released ahead of next week's announcement of the annual country classification results, MSCI upgraded its assessment of short selling accessibility in the Korean stock market from "minus" (needs improvement) to "plus." MSCI added, "We will continue to monitor developments to assess the stability of the system."

Regarding the foreign exchange market, MSCI mentioned the allowance of participation by foreign institutional investors (RFI) in the domestic interbank foreign exchange market and the extension of foreign exchange trading hours. While MSCI acknowledged that "a series of reform measures have been implemented," it also explained that "operational difficulties remain in the registration process for foreign investors, and the use of omnibus accounts and over-the-counter (OTC) trading is limited, which restricts the effectiveness of these measures."

MSCI also commented on the improvement of the dividend procedure, which now allows the dividend amount to be confirmed before the record date, stating, "Only a small number of companies have adopted this," and pointed out that "restrictions on the use of stock market data limit the availability of investment products."

Last year, the Korean stock market received a "minus" rating in 7 out of 18 evaluation categories. This year, with the short selling accessibility category upgraded to "plus," the number of "minus" categories has decreased to 6.

MSCI assessed that improvements are still needed in areas such as foreign exchange market liberalization, investor registration and account setup, clearing and settlement, and investment product availability.

MSCI classifies global stock markets into developed, emerging, and frontier markets. Korea is currently classified as an emerging market, along with countries such as China, Indonesia, Malaysia, and Brazil.

In 2008, Korea was placed on the "Watch List" for potential inclusion in the MSCI Developed Markets Index, but was not upgraded due to insufficient market accessibility. Ultimately, Korea was removed from the Watch List in 2014.

MSCI has consistently called for Korea to enhance foreign investor accessibility through changes to dividend procedures, opening of the foreign exchange market, and expansion of English-language disclosures.

Recently, measures have been implemented to increase openness to foreign investment. Since last year, the corporate value-up program has led to more active shareholder return initiatives by companies. As a result, expectations for Korea's reinstatement on the Watch List are rising. The short selling ban issue, which was raised last year, has also been resolved.

MSCI will announce the results of its annual market reclassification on June 25 (Korea Standard Time). If Korea is classified as a Watch List candidate for inclusion, the earliest possible announcement of inclusion would be in June 2026, with actual inclusion taking place at the end of May 2027.