Despite being one of the world’s most advanced economies, Korea continues to be classified as an "Emerging Market" by MSCI (Morgan Stanley Capital International) in its 2025 Annual Market Classification Report. This decision, unchanged since 2014, has placed Korea in the same category as India, Brazil, and South Africa.
Overview of MSCI Emerging Markets Index
1. Included Countries The index encompasses stock markets from 24 emerging economies, including:
China
Korea
Taiwan
India
Brazil
South Africa
Mexico, among others
2. Constituents The index is composed of over 1,400 stocks, including large- and mid-cap companies. Each constituent is weighted by its market capitalization in the respective country.
3. Country Weights (as of 2025)
China: ~30%
India: ~15%
Taiwan: ~15%
Korea: ~12%
Others: Brazil, Mexico, South Africa, etc.
4. Sector Composition The index includes a diverse range of sectors, notably:
IT
Financials
Consumer Goods
Industrials
The IT sector holds a particularly large share, with major companies such as Samsung Electronics, TSMC, Tencent, and Alibaba.
Key Reasons Korea Remains an Emerging Market
1. Inaccessible Foreign Exchange Market
MSCI’s primary concern is the lack of a fully liberalized FX market. As of 2024, Korea allows foreign financial institutions (RFIs) registered with local authorities to participate in the onshore interbank FX market and has extended trading hours. However, the absence of offshore KRW trading and a real-time, transparent price quote mechanism falls short of MSCI’s definition of a “fully accessible” currency market.
Furthermore, Korea's foreign exchange market is still perceived as opaque, with transparency being the most urgent issue for international investors.
2. Inconsistent Short-Selling Policy
Another major issue is the inconsistency of Korea's short-selling policies. MSCI emphasizes that the lack of predictability and policy stability hinders investor confidence. Since 2020, Korea has repeatedly suspended, resumed, and restricted short selling depending on political pressures. This creates regulatory volatility and suggests the market is influenced more by politics than by investor-friendly principles.
3. Lack of English-Language Disclosures
MSCI also cites insufficient English-language disclosures. While an English disclosure requirement was introduced in 2024 for KOSPI-listed firms with over KRW 10 trillion in assets and more than 30% foreign ownership, this applies only to firms where foreigners already hold significant stakes. For better accessibility, even companies without foreign shareholders should offer disclosures in English. From an investor's perspective, this remains a fundamental barrier.
4. Opaque Dividend Practices
Dividend payments in Korea lack consistency and transparency. Few companies maintain stable payout ratios or pre-announce dividend amounts before the record date. In 2023, the government required public disclosures of dividend amounts before the record date, leading to charter amendments in about 40% of listed companies. However, fewer than 100 of 1,176 dividend-paying firms have followed through with meaningful changes.
Investors, especially international ones, seek stability and predictability in dividend policy—something currently lacking in Korea.
5. Limited Derivatives Market Accessibility
Due to a rigid investor registration system, spot transfers and OTC trades remain difficult. Moreover, access to exchange data for financial product development is restricted. Korea lacks a diverse set of financial instruments, and skepticism toward derivatives like futures, options, swaps, and structured products still lingers. This significantly limits the sophistication and hedging capacity of the Korean market compared to advanced markets.
Conclusion: Korea Still Has a Long Way to Go
Despite gradual reforms since 2023, Korea’s capital market still does not meet the criteria MSCI sets for developed markets. A combination of FX restrictions, policy volatility, poor transparency, limited product offerings, and language barriers keeps Korea in the emerging category. Until these fundamental issues are addressed, reclassification remains unlikely.
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