[MSCI Developed Index Challenge]① Will President Lee Jaemyung's 'Inclusion' Pledge Gain Momentum in the New 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 goal for the Korean stock market-has once again come under scrutiny with the start of 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. Some observers warn that if Korea fails to be added to the "watch list" 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 unveil a comprehensive roadmap for the foreign exchange and capital markets this month, aimed at inclusion in the MSCI Developed Markets Index. The plan will outline a timeline for implementing measures such as expanding foreign exchange trading to a 24-hour market and facilitating offshore won transactions between foreign investors. If Korea succeeds in being placed on the watch list in June, the scenario would be an announcement of inclusion in the Developed Markets Index in 2027, with actual implementation 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 included in the Emerging Markets (EM) Index despite its stock market size and corporate competitiveness already being on par with developed nations. Previous administrations have repeatedly failed in their attempts, citing institutional shortcomings and the closed nature of the foreign exchange market. In particular, during the first year of the Lee Jaemyung administration last year, expectations for watch list inclusion were high both inside and outside the securities industry, thanks to a KOSPI rally driven by reforms such as amendments to the Commercial Act. However, Korea did not even reach the threshold.

Peter Stein, CEO of the Asia Securities Industry & Financial Markets Association (ASIFMA), pointed out areas for improvement, saying, "Typically, developed markets provide investors with an environment that is virtually frictionless for trading, based on a high degree of foreign exchange market liberalization, ease of capital financing, and the availability of hedging tools such as short selling and listed derivatives." For the government, which sees 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 deliver results before policy momentum is lost.

Lee Hyoseop, Research Fellow at the Korea Capital Market Institute, said, "The previously cited issue of short selling has been resolved, and now only the opening of the foreign exchange market to 24-hour trading remains," adding, "There is a strong possibility of being placed on 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, cautioned, "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 a separate matter." He emphasized, "Korea must first address world-leading regulations such as inheritance tax rates, dividend tax rates, and short selling penalties."