South Korea’s KOSPI surged 112% in 2026, overtook the UK’s FTSE 100, and ranked because the world’s best-performing main index in 2025. But MSCI’s newest annual overview left the nation in its Rising Markets class for one more 12 months.
MSCI CEO Henry Fernandez says South Korea’s financial system will not be the issue. Its forex market is.
One Forex Rule Blocks the Improve
Fernandez advised CNBC that South Korea is “one of the vital developed markets on the planet” in financial and technological phrases. However MSCI judges international locations on how their fairness markets perform for worldwide buyers. On that measure, the Korean received creates a particular barrier.
Fund managers shopping for South Korean equities should first buy the received to settle trades. In each different market that MSCI classifies as developed, buyers can purchase or promote that forex at any hour, from any main monetary heart. The Korean received trades solely throughout enterprise hours in Seoul.
That constraint issues at scale. Fernandez mentioned a 3rd of all globally managed index belongings sit in index funds. Managers operating these funds can’t rebalance Korean positions exterior Seoul buying and selling hours.
July Reform Is Not Sufficient to Persuade MSCI
South Korea plans to launch 24-hour dollar-won spot buying and selling on July 6. Fernandez acknowledged the reform as actual progress. However he raised a direct query: will a Seoul-based evening shift generate sufficient liquidity, with a good sufficient bid-ask unfold, to fulfill institutional demand? He mentioned he has doubts.
MSCI additionally cited inflexible investor identification necessities, restrictions on in-kind transfers, and limits on trade knowledge use as further causes for preserving the nation in rising markets. The index supplier said that buyers reported these points stay unresolved.
South Korea already holds developed-market standing underneath FTSE Russell’s classification system. The MSCI designation carries larger weight for passive fund flows globally, which is why Seoul has lengthy pursued the improve. Earlier this 12 months, the KOSPI overtook London’s FTSE 100 to turn out to be the eighth most dear nationwide fairness index on this planet. Market efficiency doesn’t issue into MSCI’s methodology, nonetheless.
The July buying and selling launch would be the key take a look at. If it produces deep, liquid markets across the clock, MSCI’s subsequent annual overview might look totally different.
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