MSCI keeps Korea on emerging market list on short-selling ban

MSCI Inc. maintained South Korean stocks in its emerging market list as the government kept its blanket short-selling ban, denting the country’s hopes to attract more foreign capital to Asia’s fourth-largest economy by winning the global index provider’s developed market status.

MSCI said on Thursday the short-selling ban implemented in November last year introduced additional accessibility constraints. South Korea has been prohibiting the short selling of local stocks since some foreign banks were found to have executed a substantial amount of naked short sales, which is illegal in the country.

“While this ban is expected to be temporary, sudden changes in market rules are not desirable,” said the index provider in the MSCI 2024 Market Classification Review.

Earlier this month, MSCI said South Korea was expected to retain its emerging market status as the country’s short-selling market accessibility is deteriorating.

The authorities extended the prohibition on short selling, a legitimate stock trading practice involving borrowing shares and then selling them in the market, to the end of March 2025.

TO KEEP MONITORING REFORM MEASURES

MSCI said it will continue to monitor the implementation of measures aimed at improving the accessibility of the South Korean equity market.

The US firm welcomed financial market enhancement steps the country unveiled such as the abolishment of foreign investor registration, currency market reform and mandatory disclosures.

“It is important to note that the aforementioned reforms do not address the issues arising from the limitations imposed by the local stock exchange on the use of exchange data for financial product creation,” MSCI stressed.

“Potential reclassifications 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,” it said.

MSCI evaluates equity markets around the world each year to determine whether they should be classified as a developed, emerging, frontier or standalone market. Many global investors allocate assets based on the classification.

South Korea, which has been classified as an emerging market since 1992, was added to MSCI’s watchlist for a potential upgrade to developed market status in 2008. The country was removed from the watchlist in 2014, however.

Write to Han-Gyeol Seon at always@hankyung.com
 

Jongwoo Cheon edited this article.