Seoul: South Korea has again failed to be put on a watch list for an upgrade in market status by global index provider Morgan Stanley Capital International (MSCI), the index provider said Wednesday, stressing the need for the country to work on its foreign exchange market reform and diversify investment instruments.
According to Yonhap News Agency, MSCI decided to keep South Korea in an emerging market group as market participants have identified the limited convertibility of the Korean won in the offshore currency market as a key barrier to reclassification to a developed market status. The country was initially put on the watch list in 2009 for a potential upgrade of its status to a developed market and inclusion in the MSCI developed market index, but was delisted in 2014 due to flaws such as limits on currency-trading hours.
"At that time, other key accessibility issues highlighted were the rigidity of the ID system that made in-kind transfers and off-exchange transactions onerous; and the lack of investment instruments availability due to the restrictions on the use of exchange data for the creation of financial products," MSCI said. The index provider said it will continue to monitor developments to assess the country's market stability and consistency of its regulatory framework over time, adding "potential reclassification consultations require that all issues have been addressed, reforms have been fully implemented, and market participants have had ample time to thoroughly evaluate the effectiveness of the changes."
The decision by MSCI came after it said in its annual market accessibility report released last week that foreign accessibility to South Korea's equity and currency markets continues to remain limited, despite a series of reform measures, including the extension of trading hours and the allowance of foreign investors to participate in the onshore foreign exchange market. The global index provider had also highlighted that there is no offshore currency market and that constraints persist on the onshore currency market.
MSCI reclassifies its watch list of emerging markets and developed markets every year in June, based on the countries' economic development, size and liquidity of equity markets, and market accessibility for foreign investors.