[Korea’s Bid for MSCI Developed Status]① Will Korea’s Inclusion Gain Momentum This Year?

If Korea Is Added to the "Watch List" This Year, Announcement of Inclusion Could Come Next Year
"Foreign Exchange Liberalization and Short Selling Regulations Must Be Addressed First"

President Lee Jaemyung’s pledge to include Korea in the Morgan Stanley Capital International (MSCI) Developed Markets Index-a long-standing aspiration for the Korean stock market-has returned to the spotlight with the new year. The key issue is how MSCI will evaluate the government’s efforts to improve foreign investor accessibility, such as opening up the foreign exchange market. There are concerns that if Korea fails to be listed as a “watch list” country again this year, the government’s policy momentum-centered on index inclusion as a core task for ushering in the KOSPI 5000 era-could weaken.

According to relevant ministries on January 2, the government plans to release a comprehensive roadmap for the foreign exchange and capital markets this month, aimed at securing inclusion in the MSCI Developed Markets Index. The plan centers on presenting a concrete timeline for expanding the foreign exchange market to 24 hours and activating offshore won trading among foreign investors. If Korea succeeds in being added to the watch list in June based on these measures, a scenario could unfold where the country is announced for inclusion in the Developed Markets Index in 2027 and actually added in 2028. Inclusion in the MSCI Developed Markets Index is significant, as it serves as a benchmark for asset allocation by global institutional investors, pension funds, and passive funds.

Currently, Korea is already considered at the level of a developed country in terms of stock market size and corporate competitiveness, yet it remains classified within the Emerging Markets (EM) Index. Previous administrations have repeatedly failed in their attempts due to institutional shortcomings and the closed nature of the foreign exchange market. Notably, in the first year of the Lee Jaemyung administration last year, expectations for being added to the watch list were high both within and outside the financial sector, thanks to a KOSPI rally driven by reforms such as amendments to the Commercial Act. However, Korea did not even make it to the threshold.

Peter Stein, CEO of the Asia Securities Industry & Financial Markets Association (ASIFMA), pointed out areas for improvement, stating, “Typically, developed markets provide an environment with virtually no trading friction for investors, based on a high level of foreign exchange market liberalization, ease of capital raising, and the availability of hedging tools such as short selling and listed derivatives.” For the government, which views inclusion in the Developed Markets Index as both a symbol of stock market advancement and a key to attracting foreign investors, it is crucial to demonstrate results before policy momentum wanes.

Lee Hyoseop, a research fellow at the Korea Capital Market Institute, expressed optimism, saying, “The previously criticized issue of short selling has been resolved, and only the opening of the foreign exchange market to 24 hours remains. There is ample possibility of being added to the watch list in 2026.” He described inclusion in the Developed Markets Index as “the most important event directly linked to the KOSPI 5000 era.” In contrast, a senior official at a foreign securities firm, who requested anonymity, said, “It will not be easy this year or even next year. Even if Korea is added to the watch list, actual inclusion in the Developed Markets Index is another matter.” He emphasized, “The world-leading regulations, such as inheritance tax rates, dividend tax rates, and short selling penalties, must be addressed first.”