[Good Morning Market] Korean Stock Market Rated Higher for Short Selling Reform, Expected to Remain Cautious Amid Middle East Concerns

On June 20, the domestic stock market is expected to remain in a wait-and-see mode, closely monitoring the situation in the Middle East and the possibility of U.S. military intervention.

With the New York Stock Exchange closed on June 19 (local time) in observance of Juneteenth, major stock markets in countries such as China and those in Europe mostly ended lower as concerns over the Middle East escalated. Investor sentiment was further dampened by U.S. President Donald Trump reiterating pressure on Iran to abandon its nuclear weapons development, stating that he would decide on whether to attack Iran within two weeks.

Reuters Yonhap News

Kim Jiwon, a researcher at KB Securities, commented, "With investor sentiment weakened due to the intensifying situation in the Middle East and the possibility of U.S. military intervention, the domestic stock market is expected to maintain a cautious stance." She added, "With the announcement of China's Loan Prime Rate (LPR) today, major monetary policy events for the first half of the year will conclude, and market attention is likely to shift next week to indicators such as the U.S. Personal Consumption Expenditures (PCE)."

Meanwhile, Morgan Stanley Capital International (MSCI) released its '2025 Annual Market Accessibility Review' early this morning. MSCI upgraded its assessment of short selling accessibility in the Korean stock market from 'minus' (needs improvement) to 'plus,' positively evaluating a series of recent reform measures, including the extension of foreign exchange trading hours and the allowance of domestic banks to participate in the interbank foreign exchange market. However, MSCI noted that foreign investor accessibility remains restricted and called for further improvement.

Last year, the Korean stock market received a 'minus' rating in 7 out of 18 assessment categories, but this year, with the short selling accessibility category turning to 'plus,' the number of 'minus' categories has been reduced to 6. On June 25, MSCI will announce the results of its annual country classification review, which will determine the list of countries under consideration for inclusion in the MSCI Developed Markets Index.

Lee Sunghoon, a researcher at Kiwoom Securities, stated, "Recently, expectations for Korea's inclusion in the watchlist have risen, supported by efforts to enhance trust in the domestic stock market, such as the Value-Up Program and amendments to the Commercial Act." He further pointed out, "Given that foreign investors are currently largely absent from the market, if Korea is included in the watchlist, there is a possibility of a significant preemptive inflow of foreign capital."

Recently, the KOSPI has repeatedly failed to break through the 3,000-point level, as foreign investors have paused their buying due to concerns over high valuations following a sharp rally. However, considering that expectations for new government policies remain strong, there are views that the medium- to long-term trend of net foreign buying will continue.

Researcher Lee explained, "Today, the domestic stock market is expected to rebound, particularly among distribution and domestic consumption stocks, following the confirmation of an approximately 30 trillion won supplementary budget focused on economic stimulus and strengthening domestic consumption capacity." He added, "Given the recent active rotation among policy beneficiary stocks in the domestic market, a favorable trend is expected to center on policy-themed stocks such as artificial intelligence (AI), stablecoins, low price-to-book ratio (PBR) stocks, and domestic demand stocks."