MSCI Retains South Korea in Emerging Markets Amid Accessibility Hurdles

Global index provider MSCI has decided to keep South Korea within its emerging-market index, citing persistent challenges in market accessibility. While the country has initiated significant regulatory reforms, the index provider maintains that structural hurdles in the foreign exchange market must be resolved before a shift to developed-market status can occur.

The Foreign Exchange Bottleneck

The primary reason for MSCI's decision lies in the limitations of South Korea's onshore foreign exchange market. According to the index provider, the Korean won remains a non-deliverable offshore currency, which creates friction for international institutional investors.

A critical concern highlighted by MSCI is the lack of adequate liquidity during extended onshore trading hours. For a market to be classified as "developed," it must meet rigorous execution standards that allow global fund managers to enter and exit positions seamlessly. MSCI noted that while the South Korean authorities have introduced commendable reforms, the impact of these changes needs more time to be assessed for sustained improvement.

Government Reforms and the Path to Developed Status

The South Korean government has made securing developed-market status a central policy objective. Under the administration of President Lee Jae Myung, which took office in June 2025, a series of market-opening reforms have been rolled out.

Key among these is the plan to introduce round-the-clock foreign exchange trading, expected to launch in the second half of this year. The Ministry of Finance and financial regulators have acknowledged that the country's exclusion from the developed-market watchlist this year is a reflection of these ongoing implementation phases. Authorities remain optimistic that continued progress in capital market reforms will eventually pave the way for inclusion in the MSCI developed-market index.

KOSPI Resilience Amid Index Classification

Despite the setback in its global classification, South Korea’s equity markets have shown extraordinary strength. The benchmark KOSPI index has emerged as the world's best-performing equity benchmark over the past year, doubling in value. This massive rally has been largely propelled by the semiconductor sector, fueled by the global surge in investment toward artificial intelligence (AI) infrastructure.

Market analysts noted that MSCI's decision was largely expected following the country's performance in the recent annual review. The KOSPI has already demonstrated its volatility and resilience, recently rebounding by more than 3% following a sharp 10% decline, highlighting the high-stakes environment for investors tracking the region.

Key Takeaways

• Liquidity Issues: MSCI cited inadequate liquidity in the onshore foreign exchange market and the non-deliverable nature of the Korean won as primary barriers to developed-market status.
• Reform Roadmap: The South Korean government is implementing round-the-clock FX trading in late 2025 to address accessibility concerns and meet global standards.
• Market Performance: Despite the classification, the KOSPI has doubled in value over the last year, driven primarily by the global AI-led semiconductor boom.