[Korea’s Bid for MSCI Developed Status]②“Three Key Elements for the Roadmap”

Views from Seven Capital Market Experts
All Rank FX Market Opening as the Top Priority
Foreign Investor Access and Policy Predictability Key

"The Korean market is unpredictable." Capital market experts agree that Korea still has a long way to go to meet the requirements of a developed market as demanded by Morgan Stanley Capital International (MSCI), ranging from 'foreign exchange market accessibility' to 'policy credibility.' Accordingly, there is a growing consensus that the soon-to-be-released 'roadmap' from the Lee Jaemyung administration must include more concrete measures to address these concerns.

On January 5, The Asia Business Daily interviewed seven domestic capital market experts, who summarized the key variables that will determine Korea's inclusion in the MSCI Developed Markets Index as three main factors: opening of the foreign exchange market, improving accessibility for foreign investors, and policy predictability. Ultimately, the question is whether Korea can meet the 'global standard.' Lee Namwoo, Chairman of the Korea Corporate Governance Forum, stated, "Since the launch of the new administration, a series of capital market reforms such as amendments to the Commercial Act have established systems for 'investor protection' and brought about many improvements." However, he emphasized, "Accessibility to the foreign exchange market and other areas still do not meet the expectations of overseas investors. We must align 100% with global standards."

Can the Foreign Exchange Market Be Opened 24 Hours? ... Measures Needed to Support Participants and Liquidity

Experts unanimously identified the '24-hour opening of the foreign exchange market' as the most urgent measure for inclusion in the developed markets index. Professor Seok Byunghun of Ewha Womans University’s Department of Economics pointed out, "Korea's market accessibility continues to receive failing marks from foreign investors, mainly due to the absence of an offshore won foreign exchange market." Lee Hyoseop, Senior Research Fellow at the Korea Capital Market Institute, noted, "The issue of short selling has been resolved, and the only thing left is the 24-hour foreign exchange market. The government has already made a forward-looking announcement," expressing optimism about the possibility of index inclusion.

The MSCI Developed Markets Index Inclusion Task Force (TF), launched last year under the leadership of the Ministry of Economy and Finance (formerly the Ministry of Strategy and Finance), has been working to detail a roadmap for operating a 24-hour foreign exchange market. As a result, plans such as the establishment of a 24-hour offshore won settlement network within this year are expected to be released this month. Lee emphasized, "It is important that the roadmap includes not only specific timelines and plans, but also support measures for how to create actual participants and liquidity when opening the foreign exchange market."

However, exchange rate management is cited as a concern. Professor Ahn Donghyun of Seoul National University’s Department of Economics pointed out the recent increase in the volatility of the won-dollar exchange rate, questioning, "There is already a lot of intervention in the market, so if the market is open 24 hours, can the authorities intervene in third countries?" An expert who requested anonymity commented, "The government’s talk about releasing a roadmap is just a campaign pledge, and seems to be a gesture to boost the stock market. Overseas investors also have these doubts," highlighting that it will not be easy to realize the opening of the foreign exchange market as outlined in the roadmap.

Further Improvements Needed for Foreign Investor Accessibility... Low 'Policy Credibility' Also an Issue

Experts also agreed that additional measures to enhance market accessibility for foreign investors, such as expanding the availability of English-language materials, should be included in the roadmap. Chairman Lee stated, "All government ministries should release their policies in English." He pointed out, "For example, there are no English materials even for amendments to the Commercial Act, which attract significant interest from foreign investors. This is in stark contrast to Japan, which releases almost all materials in English simultaneously." Although the scope of English disclosures has been expanded this year to include KOSPI-listed companies with assets of 2 trillion won or more, both the quantity and quality are still considered insufficient.

Most importantly, it is crucial to continuously pursue investor protection policies and restore policy credibility. A senior official at a foreign asset management firm said, "Even the government's announcement to open the foreign exchange market is not convincing. Just looking at the short selling issue, Korea is a country with low policy predictability and consistency," shaking his head. Overseas investors, who have witnessed sudden bans and resumptions of short selling according to public opinion and political logic, are deeply concerned that government policy could be reversed at any time due to populism. Another senior official at a foreign securities firm also remarked, "Why do you think Nomura Securities withdrew from sales trading in Korea? The policies are too unstable, and there are too many regulations. Plus, there is an election this year," expressing concern.

Inclusion in the MSCI Developed Markets Index is not decided unilaterally by MSCI. Since the decision is based on feedback from major global institutional investors, it is only possible if both domestic and foreign investors genuinely feel that the Korean market has reached the level of a developed country. Last year, Korea received a 'needs improvement (-)' rating in six areas, including foreign investor procedures, in MSCI's market accessibility assessment. This stands in stark contrast to countries already classified as developed markets, which received top ratings (++) in most categories. Chairman Lee suggested, "It is necessary to continuously strengthen the fundamentals of capital market policies such as investor protection, while also maintaining ongoing communication with major players, including MSCI."