The South Korean government has revealed a detailed strategy to secure its entry into the Morgan Stanley Capital International (MSCI) developed market index. This plan includes initiatives to operate the country’s foreign exchange market 24 hours a day. The aim is to address the “Korea discount” issue, where local shares trade below their actual value, and to enhance South Korea’s appeal as an investment hub.
If the proposed measures are successfully executed, South Korea could be considered for inclusion in MSCI’s watch list during the annual market classification review in June. The final decision on its entry into the developed market index could come as early as June 2027. This move could attract index-tracking funds into the South Korean market by 2028, with potential benefits expected during President Lee Jae Myung’s tenure until June 2031.
Despite meeting various criteria for a developed market, South Korea remains classified as an emerging market due to perceived limitations in market accessibility. One major obstacle highlighted by MSCI is the restricted convertibility of the Korean won in offshore currency markets. To address this, Seoul plans to extend its FX market operations to round-the-clock trading starting in July, marking the second expansion in two years.
The Ministry of Economy and Finance anticipates that the 24-hour trading system, coupled with enabling offshore settlement in the Korean won, will boost transaction volumes in the FX market. Additionally, South Korea intends to relax regulations to facilitate won trading among offshore foreign investors, a practice previously restricted. These steps align with efforts to align South Korea’s market status with MSCI’s classifications, where currently it falls under emerging markets along with countries like Taiwan, China, India, and Mexico.
