South Korea’s MSCI campaign has time problem

It’s that time of year again, when South Korea turns on the charm offensive to impress the gang at MSCI to win developed market status.

And President Yoon Suk Yeol is laying it on thick ahead of Seoul’s June audition with what’s arguably the premier index provider. Korean equities have already gotten the “developed” nod from Dow Jones, FTSE and Standard & Poor’s. But many investors view MSCI as the financial version of a Michelin star. 

An MSCI upgrade would catalyze a wave of capital inflows from top global asset managers. It would be a game-changer for undervalued blue chips and strike a big blow against the dreaded “Korea discount.”

So, how is Yoon doing? Sadly, not great. 

Sure, the president is saying the right things. In mid-March, for example, the Ministry of Economy and Finance unveiled plans that seemed aimed at garnering MSCI’s attention. It would ease curbs on foreign ownership of pivotal Korean companies to level playing fields and remove uncertainty. 

Along with addressing “outdated regulations,” Yoon wants to do away with bureaucratic registration requirements for foreigners, something about which MSCI has scolded Seoul. Korea wants to extend currency-trading hours to woo foreign business. It might even scrap the ban on short-selling that had Korea in finance-page headlines for all the wrong reasons. 

All good. The problem, though, isn’t what Yoon’s government pledges to do. It’s the when that worries me. 

Since the early 2000s, at least, a succession of Korean governments have known what needed to be done to raise the nation’s financial game. Yet each saw the magnitude of the task, and the political risks involved when taking on powerful vested interests and stuck with the status quo. 

Just since the 2008-2009 global financial crisis, Korea has seen President Lee Myung-bak, a former corporate CEO, demure of opening the financial system. Then came Park Geun-hye. In 2017, it was Moon Jae-in’s turn to pledge financial upheaval before punting to his successor. Since May 2022, Yoon has ricocheted from issue to issue without putting any notable reform wins on the scoreboard. 

This gets us back to the when of this tale. For me, as a Tokyo-based writer, it’s hard not to think about the cautionary tale that was Shinzo Abe’s premiership. 

If the late Japanese leader taught the world anything, it’s to put big reform wins on the board early and often. Sadly, Abe did not, which is why Japan continues to stagger along as China increases its dominance over Asia. 

Yoon has had 11-plus months to make big policy gestures toward a more dynamic economy — and a top investment destination. And it’s grand that he’s now serious. 

But the pace of Yoon’s rescue already feels glacial. Even as his ministries review foreign ownership limits on 33 companies in aviation, broadcasting, newspapers, telecom and elsewhere, it has the makings of review that might never end. As if Lee, Park and Moon didn’t create their own government panels? 

The same goes for efforts to devise ways to protect local companies should Seoul remove foreign ownership ceilings. This means that, whatever timeframe one thinks Seoul is on, the process is sure to take much longer than hoped. 

Clearly, Yoon’s challenge isn’t identical to that of what Abe faced. But the lessons from Tokyo are worth heeding.

In 2013, soon after taking power, Abe detailed ambitious plans to increase innovation, productivity and corporate governance. Then, he spent the next seven-plus years prioritizing everything but big structural reforms. 

As Yoon lives in Japan years, he’s forgetting how China’s rise is accelerating economic time more and more each year. China has its problems, but Asia’s biggest economy is, for better or worse, speeding up the velocity of competitive forces in Asia. 

Korea can’t get back the 15-plus years its leaders squandered. But what Yoon can do to impress the MSCI crowd is to lay out a specific and credible timeline for internationalizing the financial system. 

Start from the disappointing fact that it’s been 31 years since MSCI last upgraded Korea. That time, it was to emerging market status. This means Seoul has had more than three decades to increase accessibility, grow the size of the market, boost liquidity and prod companies to increase efficiency and dividends. 

It’s high time that Korea devised a review framework so foreign investors can acquire better stakes in companies regardless of their perceived importance to national security. Korea also must learn how to live with hedge funds and other foreigners interested in tapping its potential. 

So, let’s get on with raising Korea’s game over the next 12 months, not the next dozen years. The more Seoul acts glacially to stop protecting Korea Inc. from global market forces, the more its top 12 economy will punch below its weight. And do so at a discount.

By William Pesek 


William Pesek is an award-winning Tokyo-based journalist and author of Japanization: What the World Can Learn from Japan's Lost Decades. Previously, he was a columnist for Bloomberg and Barron’s.