Korean Stocks Miss MSCI Developed Market for 15th Straight Year as Regulators Remain Constrained by the Shadow of the 1997 Financial Crisis

BlockBeats News, July 9th. Despite the continuous strengthening of the South Korean stock market driven by leading AI chip companies such as Samsung Electronics and SK Hynix, and the advancement of multiple capital market reforms, MSCI has maintained South Korea's "Emerging Market" classification for the 15th consecutive year. The core reason is still the restrictions on foreign access and insufficient opening of the offshore Korean won market.

The report stated that the South Korean regulatory authorities have long been concerned that opening up offshore Korean won trading may lead to a repeat of the capital outflows and the sharp depreciation of the won seen during the 1997 Asian financial crisis. Therefore, they have never fully relaxed foreign exchange controls. Although South Korea has introduced reforms such as comprehensive custody accounts and extended Korean won trading hours, Korean won settlement is still limited to onshore transactions. MSCI believes that the degree of market openness has not yet reached the standards of developed markets.

The institution pointed out that if South Korea successfully upgrades to MSCI's developed market status in the future, it is expected to attract approximately $30 billion in passive fund inflows. However, South Korea's weight in the developed market index is estimated to be only about 3%, lower than the current 24% in the MSCI Emerging Market Index. As a result, small and mid-cap stocks may face outflows of funds.

Analysts believe that South Korea's long-standing "Korea discount" valuation issue still needs to be resolved through structural reforms such as tax reforms, enhancing shareholder returns, and improving corporate governance, rather than relying solely on a market classification upgrade.