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MSCI downgrades Korean stock market's short-selling accessibility

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The MSCI logo / Reuters-Yonhap

The MSCI logo / Reuters-Yonhap

By Anna J. Park

Korea's stock market accessibility for short-selling has deteriorated due to the country's ongoing short-selling ban, Morgan Stanley Capital International (MSCI) announced Thursday, local time.

This is the global index provider's first official assessment of Korea's eight-month ban on short-selling practices, which began in early November last year and is slated to continue until the end of June this year.

In the latest annual review by MSCI earlier this week, Korea's short-selling market accessibility has been downgraded to minus, which stands for improvements needed. Korea was previously rated with the categorization of plus, which indicated the absence of issues or possible improvements.

With MSCI's downgrade coming two weeks ahead of its annual market classification review later this month, Korea's long-held aspiration to transfer into the MSCI-developed market index is expected to be dashed again.

"Despite the Korean government's various efforts to advance its capital market system in order to be included in the MSCI developed markets index, MSCI has maintained a conservative stance. The likelihood of the Korean stock market being included in the developed markets index this year remains low," Yeom Dong-chan, an analyst at Korea Investment & Securities, said.

While Korea has met all the other requirements for entering the developed markets, such as its economic and market size, the country has fallen short concerning the criteria for stock market accessibility.

In response, Korean financial regulators have taken various measures to increase foreign accessibility to the domestic stock market, such as the abolition of the decades-old rule of the foreign investors' registration system and the slated opening up of the foreign exchange market to foreign institutions.

However, the global index provider said that it may adjust relevant market accessibility ratings on such efforts, only once "the introduced measures are fully implemented and tested by international institutional investors."

"There will be no chance for Korea to be included in the MSCI developed market index, as long as it maintains the short selling ban. Since there has been no expectation for inclusion this time, it is anticipated that there will be no immediate impact on the domestic stock market," Lee Kyoung-min, strategist at Daishin Securities, pointed out.

Park Ji-won


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