Morgan Stanley Capital International (MSCI) said the availability of Korea stock market investment products accessible to global investors has improved, but noted that the level of foreign exchange market liberalization and information flow still needs improvement.
MSCI stated accordingly in its annual market accessibility review released on the 19th ahead of next week's disclosure of its annual country market classification results. According to the review, Korea's stock market received "minus" ratings in six of 18 evaluation items last year, but this year the investment product availability item turned to "plus," reducing the number of "minus" (needs improvement) items to five.
The items where Korea's stock market received minus ratings were ▲ level of foreign exchange market liberalization ▲ investor registration and account opening ▲ information flow ▲ clearing and settlement ▲ securities mobility in the institutional sector.
MSCI said, "Korean authorities have continued to implement the reform agenda introduced and released additional measures across various areas," but noted, "However, fundamental accessibility issues remain unresolved."
Specifically, it said, "Plans were drawn up this year to align the foreign exchange regime with global practices, including the launch of a 24-hour FX market and a pilot program for an offshore won settlement network," but added, "However, a fully operational offshore FX market has not yet been established."
It also noted that "company-related information is not being smoothly provided in English." Although English disclosures will be mandatory for all Korea Exchange main board-listed companies starting next year, it said it will assess the effectiveness of the system after full implementation.
MSCI also pointed out that "the transition from the foreign investor registration system (IRC) to the Legal Entity Identifier (LEI) system is still underway." The coexistence of the two systems is "a constraint on the practical introduction and use of an omnibus account structure," according to MSCI.
Regarding short selling, which resumed last year, it pointed to regulatory complexity related to the ban on illegal short selling. MSCI said it "plans to continue monitoring the effectiveness and stability of this system going forward."
MSCI classifies global stock markets into developed, emerging, frontier, and standalone markets and operates its indexes accordingly. Currently, 23 countries, including the United States, Japan, and the United Kingdom, are in the developed markets index, while Korea's stock market is classified in the emerging markets index along with China and India.
MSCI included Korea in the emerging markets index in 1992 and, for the first time in 16 years, in 2008 placed it on the "watch list" for inclusion in the developed markets index. However, in 2014 it removed Korea from the watch list. MSCI has called for improved foreign investor access to the Korea market, including changes to dividend procedures, opening of the foreign exchange market, and expanded English disclosures.
MSCI is scheduled to release the results of its annual market reclassification on the 24th Korea time.