MSCI Keeps South Korea as Emerging Market, Extends Indonesia Review
Quick Look
- MSCI has maintained South Korea's emerging market status, disappointing hopes for a developed market upgrade.
- Indonesia's review is extended to November amid concerns over market accessibility and investability.
AI-generated summary
Why It Matters
MSCI, a major index provider, reviews market classifications annually. South Korea has long sought a developed market status, while Indonesia faces scrutiny over market accessibility.
Index provider MSCI kept South Korea classified as an "emerging market" in its most recent review on Tuesday, while extending its assessment of Indonesia's status until November.
The decision dashed hopes that Seoul could be included in MSCI's Developed Markets watchlist, a crucial step before a market can be upgraded to developed-market status.
For Indonesia, the extended review comes after MSCI raised concerns about market accessibility earlier this year and froze the country's stocks from its indexes in January, citing investability concerns.
MSCI said that it would continue evaluating reforms introduced by Indonesian authorities, but should these measures prove insufficient, the index provider would "consider a range of options for the appropriate treatment for the Indonesia market," including a potential downgrade to frontier-market status.
Korea discount
In South Korea's case, MSCI said limited convertibility of the Korean won in the offshore currency markets remained a key barrier to reclassification.
The index provider also cited a rigid investor identification system, restrictions on in-kind transfers and off-exchange transactions, and limits on investment products due to restrictions governing the use of exchange data.
While MSCI acknowledged measures announced by South Korean authorities to address those concerns, it said "investors have communicated that the underlying issues have not been fully resolved."
The country is preparing to launch 24-hour trading in the dollar-won spot market on July 6, the latest step to open up its foreign exchange market to overseas investors.
Seoul has long sought inclusion in MSCI's Developed Markets category. Analysts previously told CNBC that an upgrade could help resolve the so-called "Korea discount," a term used to describe the lower valuations often assigned to South Korean stocks compared with global peers.
South Korea's Finance Ministry said it would continue pursuing reforms aimed at securing an upgrade.
"If we continue to implement reforms in the foreign exchange and capital markets on our own schedule, we believe we can be included among advanced economies," the ministry said, according to Yonhap.
This is a developing story; please check back for updates.
Open Questions
- Will Indonesia implement sufficient reforms for MSCI?
- Can South Korea resolve convertibility issues?
- What are MSCI's specific criteria for upgrade?
