The South Korean stock market has failed to attain developed market status per Morgan Stanley Capital International and has instead seen its share of emerging markets decline.
According to global stock market index provicer MSCI on Sept. 23, South Korea held an 18.67% share in the MSCI Emerging Markets Index in 2004, ranking first, but has since fallen to fourth place this year, trailing behind China (24.42%), India (19.9%), and Taiwan (18.77%).
Over the past 20 years, South Korea’s weight in the emerging markets index has decreased by 7 percentage points, from 18.67% to 11.67%. In contrast, Taiwan’s share increased by 6.86 percentage points, rising from 11.91% to 18.77%, reversing the standings of the two countries. During the same period, China’s weight surged from 8.46% to 24.42%, while India’s rose from 4.93% to 19.9%.
Experts suggest that while it is somewhat expected for South Korea to lag behind the economic powerhouses of China and India, being surpassed by the smaller economy of Taiwan is a serious issue. They note that global investors fleeing China to escape the geopolitical instability caused by U.S.-China tensions have chosen Taiwan and Japan over South Korea.
The waning prominence of the South Korean stock market is attributed to its failure to nurture next-generation companies that attract global investors, such as Samsung Electronics and Hyundai. Samsung Electronics has maintained the top market capitalization in South Korea for 25 years, underscoring a lack of industrial dynamism in the country. In contrast, Taiwan has shifted its leadership from iPhone manufacturer Foxconn to semiconductor giant TSMC, while India has seen significant growth in IT firms and financial companies, including Reliance.
Frequent changes in investment policies with each new government create uncertainty, undermining the appeal of the South Korean stock market for global institutional investors. The government’s full ban on short-selling since November last year and the ongoing uncertainty over whether to abolish the financial investment income tax—just three months before its planned implementation next year—are key examples of this policy instability. Ma Kyung-hwan, CEO of GB Investment Advisors, noted, “Uncertainty is the last thing the stock market desires, yet South Korean government policies only intensify this uncertainty, leading to confusion and anxiety among investors.”
The MSCI index is divided into three main categories: developed markets (DM), emerging markets (EM), and frontier markets (FM). South Korea, classified as an emerging market, has attempted several times to transition to developed status since 2008 but has consistently failed to make the cut. Experts explain that “global investors prioritize markets that can yield profits, and the South Korean stock market lacks attractiveness.” Due to its inability to deliver returns commensurate with its economic growth, South Korea has been overlooked by international investors. “It’s embarrassing to call the Korean market undervalued; it seems the market has already passed its judgment,” said Park Yu-kyung, Managing Director at APG Asset Management in the Netherlands. “If the KOSPI had risen in line with GDP growth, the index would be above 6,000, not just in the 2,000s.”
