Korea doesn't get MSCI developed market upgrade, India flows will have to wait

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Index provider MSCI in its June review has hinted that South Korea still has a long way to go before getting the "developed" status. "This means passive flows towards India, China and Taiwan will have to wait," said Abhilash Pagaria from Nuvama Alternative & Quantitative Research.

Earlier, the Street was expecting MSCI to upgrade South Korea from the emerging market (EM) basket to the developed market (DM) list, thus leading to an increase in passive inflows into other EM countries like India.

Passive inflow refers to cash flow into passive investment vehicles such as index funds or exchange-traded funds.

The Street had hoped that Korea would be placed on the DM watch list this year, with the anticipation of being promoted to the developed market indices by June 2024 and fully included in the developed market indices starting June 2025.

But the recent announcement by MSCI indicates that Korea has still substantial work to do to get the DM market status. MSCI Inc has highlighted the need for Korea to improve access to its capital market, including extending currency trading hours. The market accessibility review by MSCI points out issues such as the absence of offshore trading for the won and limitations on short-selling.

Korea has been a part of the MSCI Emerging Markets (EM) indices since 1992. Although it was placed on the watch list for potential promotion to the MSCI Developed Markets Indexes in 2009, it was ultimately removed from the list in 2014 due to its failure to meet the requirements.