South Korean stocks have failed to secure a place in the MSCI Developed Markets Index for the 15th consecutive year, as regulators remain constrained by the lingering shadow of the 1997 Asian Financial Crisis.

Despite South Korea’s stock market continuing to strengthen, driven by AI chip leaders including Samsung Electronics and SK Hynix, and the country having rolled out multiple capital market reforms, MSCI recently retained South Korea as an emerging market for the 15th consecutive year. The core reasons cited are restrictions on foreign investor access and insufficient openness of the offshore won market. Reports note that South Korean regulators have long feared that liberalizing offshore won trading could repeat the capital outflows and sharp won depreciation seen during the 1997 Asian Financial Crisis, and thus have not fully relaxed foreign exchange controls. While South Korea has implemented reforms including integrated custody accounts and extended won trading hours, won settlement remains limited to onshore markets, with MSCI judging that the market’s openness still falls short of developed market criteria. Institutions point out that if South Korea successfully upgrades to MSCI’s developed market classification in the future, it is expected to attract around $30 billion in passive capital inflows. However, South Korea’s weight in developed market indices would likely be only around 3%, lower than its current ~24% share in the MSCI Emerging Markets Index, leaving small and mid-cap stocks at risk of capital outflows. Analysts argue that South Korea’s long-standing "Korea Discount" valuation issue requires structural reforms—including tax system adjustments, boosted shareholder returns, and improved corporate governance—to be fundamentally resolved, rather than relying solely on market classification upgrades.