South Korea eases market rules to court foreign investors

South Korea is easing regulation of the country’s financial markets in an effort to lure more foreign investors as it seeks to fulfil its long-held goal of graduating to MSCI’s developed markets status.

The government will scrap complex 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 stocks included in the MSCI world index, the global stock benchmark, South Korea hopes to attract more long-term foreign fund flows into the local market.

Foreigners will be allowed to invest in local capital markets with internationally recognised identifications, such as passports, according to Kim Joo-hyun, chair of the Financial Services Commission.

The country’s top financial regulator also said that authorities would come up with a safe trading system for security tokens to better protect investors after the country was rocked by the collapse of several high profile cryptocurrency groups.

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

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

Finance minister Choo Kyung-ho said earlier this month that the country would extend forex market trading hours to 2am from as early as the second half of 2024. The country’s forex market currently runs from 9am to 3.30pm.

Choo said that the government would make it mandatory for big listed firms with more than Won10tn ($8.1bn) in assets to file important regulatory filings in English from 2024 as part of efforts to make the country’s capital markets more accessible for foreign investors.

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

The government is also trying to improve South Korea’s bond market environment for foreign investors in order to be included in the World Government Bond Index.

FTSE Russell, a global index provider, added South Korea to a watch list for possible inclusion in the index in September, following the country’s decision to cut taxes on foreign bond investment.

Experts welcomed the move to deregulate, saying that it would increase foreign access to the domestic capital markets. But they cautioned that the world’s 10th-largest economy had to allow offshore trading in the won in order for the country to win the MSCI upgrade.

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

“But getting rid of the key barrier against the MSCI upgrade, which is allowing offshore trading in the won, will take time as authorities are still fearful of losing full control over forex trading as the emotional scars of the Asian financial crisis still remain.”

South Korea still bans offshore trading in the Korean won while most other advanced countries — including Japan, Canada, Australia and New Zealand — allow offshore trading in their currencies, Hwang noted.

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

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