Seoul: South Korea will continue its push for inclusion in the developed-market category under the Morgan Stanley Capital International (MSCI) index after the provider decided to keep Asia's No. 4 economy in the emerging-market category, the finance ministry said Wednesday.
According to Yonhap News Agency, overnight, MSCI announced that South Korea will remain in the emerging-market category despite Seoul's efforts to be placed on the watch list for inclusion in the developed-market category. The decision was primarily due to the limited convertibility of the Korean won in offshore currency markets.
"MSCI acknowledged the government's efforts to advance the foreign exchange and capital markets, but for some of the remaining tasks, efforts to improve the system are still under way," the Ministry of Finance and Economy stated in response to the announcement. The finance ministry also noted that South Korea was not included in the developed-market category this year as the market needed time to fully reflect the impact of the completed reforms.
The ministry expressed optimism, stating, "If we continue to implement reforms in the foreign exchange and capital markets on our own schedule, we believe we can be included among advanced economies." It emphasized that South Korea will persist in its efforts to communicate with major overseas investors and incorporate their feedback into its policies.
South Korea aims for inclusion in the MSCI developed-market category by 2027, having set 39 key tasks to achieve this goal, with plans to complete 28 of them by the end of this month. "MSCI acknowledges the measures announced by Korean market authorities to address these long-standing concerns," the finance company noted. However, it highlighted that investors have indicated the underlying issues have not been fully resolved.
A significant barrier to South Korea's reclassification remains the limited convertibility of the Korean won in the offshore currency market. "Even more concerning, onshore liquidity during the extended FX trading hours remains largely insufficient to support tight execution at standards comparable to those observed in developed markets, constraining FX operational flexibility for index replicators and others," MSCI pointed out.
MSCI categorizes countries into developed, emerging, frontier, and standalone markets. For South Korea to be fully upgraded to the developed-market category, it needs to be placed on the watch list for at least one year. "MSCI will continue to monitor the implementation and engage with market participants and Korean authorities," it added.