Why MSCI Still Hasn't Upgraded Korea, and What Would Change It

MSCI still classes Korea as an emerging market because, in its view, global institutions cannot yet use the Korean market as freely as a developed one. The biggest gap is the currency. In its 2026 review, published on June 23, 2026, MSCI said the won “is not deliverable offshore” and that onshore liquidity during Korea’s extended FX trading hours is “largely insufficient” by developed market standards. It also named limited use of omnibus accounts and in-kind transfers, the compliance burden since short selling returned, and early pre-settlement funding. MSCI did not add Korea to its list of markets under review for reclassification, often called the watch list. What would change that, in MSCI’s own words: all issues addressed, reforms fully implemented, and enough time for investors to judge that the changes last.

What is the difference between an emerging and a developed market?

MSCI sorts each market using three tests, set out in its 2026 framework:

• Economic development: used only for developed status. A country’s gross national income per person has to be 25% above the World Bank’s high-income threshold for three years in a row.
• Size and liquidity: a minimum number of companies large and liquid enough for MSCI’s standard indexes. Developed status needs five, emerging needs three.
• Market accessibility: how easy it is for a foreign institution to get in, trade, settle and get out.

The third test is graded on five criteria. The bar rises with each tier:

Criterion	Emerging	Developed
Openness to foreign ownership	Significant	Very high
Ease of capital inflows and outflows	Significant	Very high
Efficiency of the operational framework	Good and tested	Very high
Availability of investment instruments	High	Unrestricted
Stability of the institutional framework	Modest	Very high

MSCI’s 2026 statements on Korea deal only with accessibility. It also upgrades a market only if the change “can be viewed as irreversible”.

How does MSCI’s annual market classification review work?

Every June MSCI publishes two documents. The Global Market Accessibility Review rates each market on 18 measures; the 2026 edition came out on June 18. The Annual Market Classification Review then says which markets, if any, are under review for a change; the 2026 results came out on June 23 (New York time).

An upgrade takes several steps: a consultation with investors, a decision, then a later index review where the change is applied. Greece shows the pace. MSCI launched a consultation on January 26, 2026, announced the upgrade on March 31, 2026, and will apply it at the May 2027 index review.

Korea has been through part of this before. From 2008 to 2014, MSCI consulted investors on moving Korea to developed status, and the limited convertibility of the won was the main barrier then too.

What did MSCI say about Korea in June 2026?

The 2026 accessibility review marks Korea “improvements needed” on five of its 18 measures:

• FX market liberalization: no fully deliverable offshore won market, and constraints on the onshore one.
• Investor registration and account set-up: the old registration certificate and the new Legal Entity Identifier systems still coexist, which limits the use of omnibus accounts (one account for many investors).
• Information flow: company information is not always in English.
• Clearing and settlement: still mostly done investor by investor, with unclear pre-funding calculations.
• Transferability: in-kind transfers and off-exchange trades are allowed with restrictions, but “not yet common practice”.

Short selling is rated “allowed with restrictions”, with MSCI noting “significant operational friction” since the ban ended. There was one upgrade: availability of investment instruments moved from “improvements needed” to “no major issues”, because derivatives on Korean indexes have been listed on exchanges abroad.

What has Korea changed since 2023?

Each complaint has a matching reform. MSCI’s question is how they work in practice.

• Investor registration. Foreign investors no longer have to register with the Financial Supervisory Service before trading. From December 14, 2023, institutions can use their Legal Entity Identifier and individuals their passport number (Financial Services Commission).
• Longer FX hours. On July 1, 2024 the onshore won-dollar market extended its close from 15:30 to 02:00 the next day, covering London hours. By July 2025, 52 foreign institutions had registered to trade in it directly (Ministry of Finance and Economy).
• 24-hour FX trading. In October 2025 the ministry set out a plan for a 24-hour onshore market and an “Offshore KRW Settlement Institution” that would let authorized foreign banks hold and settle won. The Korea Times reported in June 2026 that 24-hour trading would start on July 6, 2026. According to Korea JoongAng Daily, round-the-clock trading duly began at 06:00 that day. MSCI’s report says the offshore settlement pilot is due later in 2026, with a full launch targeted for 2027.
• Short selling. Korea banned short selling of all listed stocks from November 6, 2023 and fully reinstated it on March 31, 2025, alongside a system to detect naked short selling (Financial Services Commission).
• English disclosure. Mandatory English filings began in January 2024 for the largest companies. From May 2026 they cover all KOSPI companies with assets of 2 trillion won or more, 265 firms instead of 111. All 848 KOSPI companies are due to follow from March 2027 (Financial Services Commission). At 1,338.3 won per dollar, the 15:30 Korea time close on October 14, 2026 (Bank of Korea, ECOS), that threshold is about US$1.5 billion.

MSCI’s response to all this, in its June 2026 release: the measures are acknowledged, but “the underlying issues have not been fully resolved”.

What would an upgrade mean for Korean stocks?

An upgrade moves Korea from one group of index funds to another. Funds that track the MSCI Emerging Markets Index would drop Korea. Funds that track developed market indexes such as the MSCI World Index would add it.

On September 30, 2026 Korea made up 21.4% of the MSCI Emerging Markets Index, second only to Taiwan. Samsung Electronics (7.55%, plus 0.94% for its preferred shares) and SK hynix (5.90%) were its second and third largest members, after TSMC. In a developed market index, Korea would be a much smaller slice: on MSCI’s September 30 figures, about 2.8% of a World index that included it. That is our arithmetic, not an MSCI figure; the real weight would depend on which stocks meet the stricter developed market size rules.

So the net effect on fund flows can only be estimated, and estimates differ in sign as well as size. According to The Asia Business Daily, NH Investment & Securities estimated in June 2026 that, had Korea joined the watch list, passive inflows could reach about 44 trillion won (US$28.8 billion) over the medium to long term. The same analyst described possible passive outflows of about 8 trillion won (US$5.2 billion) at the point of actual inclusion. Both are converted at 1,527.1 won per dollar, the 15:30 Korea time close on June 18, 2026, the day the report was published (Bank of Korea, ECOS).

Two more facts for context. FTSE Russell, another large index provider, has classed South Korea as a developed market since 2009. And Greece’s switch is due about 16 months after MSCI’s consultation began. This guide does not say whether or when an upgrade will happen.

Where can you follow the next steps?

• MSCI: msci.com/market-classification carries each June’s results.
• Korean authorities: the Financial Services Commission and the Ministry of Finance and Economy publish English press releases.
• Foreign flows: our guide to how foreign investors move the KOSPI shows where to check daily foreign net buying.
• The wider debate: why Korean shares trade at lower valuations is covered in our Korea discount and Value-up guide.
• Access today: how to invest in Korean stocks from abroad covers the routes open to individual investors now.
• The market: the Market Map shows daily moves in the KOSPI 200 and KOSDAQ 150.