South Korean Stock Market MSCI Developed Market Watch List Decision on June 24, Expected Impact and Issues
The decision on whether the South Korean stock market will be added to the MSCI Developed Market Watch List will be announced on the 24th. The market is paying close attention to the results of capital market advancement efforts amidst expectations of massive global fund inflows.
Why is joining the MSCI Developed Market Index important?
Although the South Korean stock market already ranks among the top globally in terms of market capitalization and trading volume, it is still classified as an Emerging Market (EM) by MSCI standards. Joining the developed market index has been a long-awaited goal to resolve the 'Korea Discount' and attract stable, long-term foreign investment funds.
Recently, MSCI upgraded its evaluation of the South Korean stock market's 'Investment Instrument Availability' from 'Needs Improvement' to 'Possible Improvement' in its 'Global Market Accessibility Review.' This is interpreted as a positive evaluation of the government's efforts to advance the capital market, such as extending foreign exchange trading hours, abolishing the foreign investor registration system (IRC), and mandating English disclosures.
Watch List Scenario and Foreign Fund Inflow Outlook
If South Korea is designated as a watch list country in the announcement on the 24th, it does not mean an immediate inclusion in the developed market index. Typically, there is an observation period of about 1 to 2 years after being added to the watch list, and actual inclusion in the developed market index is expected to happen by June 2028 at the earliest if positive evaluations continue.
The financial investment industry estimates that if the South Korean stock market is finally included in the MSCI Developed Market Index, a minimum of 20 trillion won to a maximum of 60 trillion won in global passive funds will flow into the domestic stock market. This massive influx of funds will act as a core driving force to strengthen the market's fundamentals and reduce stock price volatility.
FAQ
- Q. Which stocks will benefit from MSCI Developed Market inclusion?
A. Large-cap blue-chip stocks with high market capitalization and high foreign ownership are likely to be the primary targets of global passive funds, so direct benefits are expected. - Q. What happens if South Korea fails to make the watch list this time?
A. There is also a cautious view as there are still shortcomings in key market accessibility items pointed out by MSCI, such as the absence of an offshore foreign exchange market. In the event of a failure, South Korea will have to wait for the next annual review after further institutional improvements and market verification.