South Korea relaxes market rules to attract foreign investors

South Korea is making it easier to regulate the country’s financial markets in a bid to attract more foreign investors as it pursues its long-term goal of upgrading to MSCI developed market status.

The government will eliminate complicated registration requirements for foreign investors to trade Korean stocks. It will also allow offerings of security tokens — digital forms of stocks and bonds — in a bid to advance the digital asset market.

By winning the upgraded status and seeing its shares listed in the MSCI World Index, the global stock index, South Korea hopes to attract more long-term foreign money flows into the domestic market.

Foreigners will be allowed to invest in domestic capital markets with internationally recognized identity, such as passports, according to Kim Joo-hyun, chairman of the Financial Services Commission.

The country’s top financial regulator also said authorities would devise a secure trading system for security tokens to better protect investors after the country was rocked by the collapse of several prominent cryptocurrency groups.

“We will strive to meet global standards for our capital markets this year,” Kim said at a meeting with regulators and financial market executives.

“We expect that an investment environment that meets global standards will help increase foreign investment in the local market and raise the international profile of our capital markets.”

Finance Minister Cho Kyung-ho said earlier this month that the country will extend forex market trading hours to 2 a.m. from the second half of 2024. The forex market in the country currently operates from 9 a.m. to 3.30 p.m.

Cho said the government will make it mandatory for large listed companies with assets over 10 trillion won ($8.1 billion) to file significant regulatory filings in English from 2024 as part of efforts to make the country’s capital markets more accessible to foreign investors.

South Korea has been classified by index maker MSCI as an emerging market, mainly due to the country’s refusal to allow offshore trading in the Korean won and its complicated registration process for foreign investors.

The government is also trying to improve the South Korean bond market environment for foreign investors in order to get them included in the Global Government Bond Index.

Global index provider FTSE Russell added South Korea to its watchlist for potential inclusion in the index in September, following the country’s decision to cut taxes on foreign bond investments.

Experts welcomed the liberalization move, saying it will increase foreigners’ access to local capital markets. But they warned that the world’s 10th-largest economy must allow offshore trading in the won in order for the country to win MSCI’s upgrade.

“The measures will be welcomed by foreign investors,” said Hwang Se-won, a researcher at the Korea Capital Market Institute.

“But getting rid of the main barrier to MSCI’s upgrade, which allows offshore trading in won, will take some time as authorities still fear losing full control of forex trading as the emotional scars of the Asian financial crisis linger.”

Hwang noted that South Korea still prohibits foreign trade in the Korean won while most other developed countries — including Japan, Canada, Australia and New Zealand — allow foreign trade in their currencies.

South Korea also prohibits direct participation of foreign investors in the local forex market, but the ban is expected to be lifted soon.

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