MSCI maintains South Korea as emerging market, delays Indonesia review amid downgrade risk
SEOUL, SOUTH KOREA – DECEMBER 09: People walk past the Korea Exchange (KRX) building, as stock markets across Asia are affected by political unrest over President Yoon Suk Yeol’s role in martial law, in Seoul, South Korea, on December 9, 2024. The Korea Composite Stock Price, Shanghai Composite Stock Price, Shanghai Composite Stock Price, SPKO Index of SP and shares in countries such as Australia, China, India and Thailand have seen a drop in their rankings amid political turmoil in South Korea and Syria. (Photo by Daniel Ceng/Anadolu via Getty Images)
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Index provider MSCI kept South Korea classified as an “emerging market” in its latest update on Tuesday, while extending its assessment of Indonesia’s situation until November.
The decision dashed hopes that Seoul could be included on MSCI’s Developed Markets watch list, a key step before the market can be upgraded to developed market status.
In Indonesia, the extended review comes after MSCI raised concerns about market access earlier this year and suspended the country’s shares from its indexes in January, citing investment concerns.
MSCI said it will continue to evaluate the changes introduced by the Indonesian authorities, but if these measures prove to be insufficient, the index provider will “consider a variety of options for appropriate treatment in the Indonesian market,” including a possible reduction in the status of the border market.
Korean discount
On the issue of South Korea, MSCI said the limited volatility of the Korean won in overseas financial markets remains a significant obstacle to reallocation.
The index provider also cited a strict investor identification system, restrictions on asset transfers and off-exchange activities, and restrictions on investment products due to restrictions governing the use of exchange data.
While MSCI acknowledged the measures announced by South Korean authorities to address these issues, it said “investors have indicated that the underlying issues have not been fully resolved.”
The country is preparing to launch 24-hour trading in the dollar-denominated market on July 6, the latest step in opening up its foreign exchange market to overseas investors.
Seoul has long sought inclusion in MSCI’s Developed Markets category. Analysts previously told CNBC that the upgrade could help offset the so-called “Korea discount,” a term used to describe the low prices often offered in South Korean stocks compared to global peers.
South Korea’s Ministry of Finance said it will continue to pursue reforms aimed at improving the economy.
“If we continue to make changes in the foreign exchange market and financial markets through our plan, we believe that we can be included among the developed economies,” said the ministry, according to Yonhap.
This is a growing issue; please check back for updates.
