MSCI Identifies Key Obstacles Remaining for South Korean Market
Taylor Wilson
MSCI's latest review acknowledges South Korea's reform efforts but flags two unresolved barriers — an offshore won that is not fully deliverable and poor securities-lending settlement — making a developed-market upgrade unlikely on June 23.
What exactly did MSCI say?
MSCI credited South Korea's reform progress, including plans for a 24-hour FX market and broader investor-access measures.
But the report named two core obstacles: the offshore won market is not yet fully deliverable, and securities-lending settlement remains inefficient.
This means → the direction is right, but in MSCI's scoring framework, "started" and "finished" are still far apart.
The short-selling ban was lifted — why is there still a problem?
South Korea lifted its short-selling ban in early 2025, but MSCI noted friction has already emerged in practice; operational processes and infrastructure are still being refined.
The specific issue: no clear standard for calculating lending amounts, dragging down settlement efficiency.
In plain terms = the rule changed, but the plumbing behind it is not ready — foreign investors still hit bottlenecks when they try to operate.
Has anything else improved?
MSCI recorded some progress: derivatives linked to Korean indices are now listed offshore, improving tool availability.
But constraints remain: exchange-data licensing for financial-product creation is restricted, and two parallel frameworks in the foreign-investor registration system hold back the adoption of omnibus account structures.
This means → progress is partial; institutional "break points" are still unresolved.
What happens on June 23?
Most investors expect South Korea to stay in the emerging-market category. Few believe it will enter the developed-market upgrade watchlist this year — and that watchlist is only the first step toward a full upgrade.
Still, given Korea's market size and liquidity, broad confidence in an eventual upgrade persists.
This reflects a straightforward reality: the question is not whether Korea qualifies in scale, but whether the last mile of institutional infrastructure is complete.
The stock market is surging — does that matter for the upgrade?
The Kospi has more than doubled this year. Samsung Electronics and SK Hynix continue to rally on the AI wave.
Markets are also pricing in hopes that President Lee Jae-myung will push governance reforms and narrow the "Korea discount."
But MSCI's market-access assessment is independent of share-price performance — it evaluates institutional and infrastructure operability, not market momentum. In plain terms = no matter how high stocks climb, the rating does not change until the plumbing is fixed.
Content is for reference only, not financial advice.