Govt announces road map for Seoul's inclusion in global index MSCI

Seoul, Jan 9 The government on Friday announced a comprehensive road map aimed at securing South Korea's inclusion in the developed market index of global index provider Morgan Stanley Capital International (MSCI), including plans to operate the country's foreign exchange (FX) market on a 24-hour basis.

The plan represents the government's latest effort to address the so-called "Korea discount," under which local shares trade at valuations below their fundamentals, and to position South Korea as an attractive investment destination, the Ministry of Economy and Finance said, reports Yonhap news agency.

The ministry said that if a series of measures are implemented effectively, South Korea could be placed on MSCI's watch list in the annual market classification review scheduled for June, with a decision on its inclusion in the developed market index possible in June 2027.

Should the process proceed smoothly and as planned, index-tracking funds may start flowing into the domestic market in 2028, when the reclassification would take effect, with tangible benefits potentially emerging during President Lee Jae Myung's five-year term that will end June 2031, it noted.

While South Korea meets developed market standards in terms of economic development, market size and liquidity, it has remained in the emerging market category due to assessments that market accessibility remains insufficient.

In particular, MSCI has cited limited convertibility of the Korean won in offshore currency markets as a key hurdle to its inclusion in the global market index.

Under the road map, Seoul will extend FX market operations to 24 hours a day starting in July, the ministry said.

Currently, South Korea's FX market operates until 2 a.m., allowing access for European investors but offering limited trading opportunities for those based in the United States.

The July extension would mark the second expansion of FX market trading hours in two years.

"If domestic brokerage firms operate their intermediation systems around the clock, it will help eliminate trading gaps," Kim Hi-jae, a ministry official, said. "It will also be beneficial for foreign investors when converting currencies and for managing FX-related risks."

The ministry said it expects the introduction of a 24-hour trading system, along with allowing offshore settlement in the Korean won, to help secure sufficient transaction volumes in the FX market.

Seoul will also ease regulations to allow won trading between offshore foreign investors by establishing an appropriate settlement system, an activity that has been restricted until now, according to the ministry.

Under MSCI's market classification announced in June, 23 countries and cities are classified as developed markets, while 24 others, including South Korea, Taiwan, China, India and Mexico, are categorised as emerging markets.

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