South Korea's 24-Hour FX Market Reforms: A Strategic Opportunity for Global Investors

South Korea's recent announcement of a 24-hour foreign exchange (FX) market, set to launch in July 2025, marks a pivotal step in its broader strategy to internationalize the won and align with global financial standards. This reform, coupled with structural upgrades to settlement infrastructure and regulatory easing, positions the country as a compelling destination for institutional and global investors. By addressing long-standing barriers to foreign participation and enhancing liquidity, these measures not only support South Korea's bid for an MSCI Emerging-to-Developed Market upgrade but also create a fertile ground for capital inflows and asset appreciation.

MSCI Upgrade Potential: Closing the Gap

MSCI's criteria for developed market status emphasize market accessibility, liquidity, and regulatory transparency. While South Korea has made progress-such as lifting its short-selling ban and extending FX trading hours to 2:00 a.m.-it remains classified as an emerging market in 2025 due to unresolved issues like limited offshore KRW convertibility and operational inefficiencies in settlement systems. The 24-hour FX reforms directly address these gaps. By enabling continuous trading across global time zones and introducing a dedicated offshore KRW real-time gross settlement (RTGS) system, South Korea is aligning its market structure with those of established developed economies.

Historical precedents suggest that such reforms are critical for MSCI reclassification. For instance, Japan's 24-hour FX market, introduced in the 1990s, was a key factor in its eventual inclusion in developed market indices. South Korea's roadmap, which includes easing reporting requirements for foreign institutions and expanding the pool of eligible participants, mirrors these successful strategies. Analysts estimate that if implemented effectively, these reforms could position South Korea for a 2026 MSCI review, with a potential upgrade by 2027.

Liquidity Expansion and Institutional Inflows

The immediate impact of the 24-hour FX reforms is a projected surge in liquidity. Data from the Ministry of Economy and Finance reveals that average daily spot FX trading volume in South Korea rose 16.3% year-on-year to $12.31 billion between July 2024 and June 2025, with 18% of this volume occurring during extended trading hours (3:30 p.m. to 2:00 a.m.). Full 24-hour trading is expected to amplify this trend, particularly as U.S. and European investors gain access to overlapping trading windows.

Institutional adoption is also poised to accelerate. The government's plan to establish an offshore KRW settlement institution and a 24-hour RTGS system will reduce transaction costs and settlement risks for foreign investors. These measures are critical for attracting asset managers and hedge funds seeking diversified exposure to Asian markets. Bloomberg analysts note that the reforms could unlock up to $50 billion in foreign inflows by 2026, driven by both passive index funds and active strategies capitalizing on the won's internationalization.

Strategic Entry Points for Investors

For global investors, the timing of these reforms presents a unique opportunity. South Korea's KOSPI index has already demonstrated resilience, outperforming regional peers in 2025 amid robust semiconductor exports and corporate governance improvements. However, the market remains undervalued relative to its fundamentals, with a price-to-earnings (P/E) ratio of 12.3x compared to the MSCI Asia Pacific average of 14.7x. Positioning in Korean equities ahead of the July 2025 reforms could capture both near-term volatility and long-term appreciation as institutional flows materialize.

The won's internationalization further strengthens the case. By easing restrictions on non-resident trading and promoting offshore KRW usage, South Korea is creating a self-reinforcing cycle: increased liquidity attracts foreign capital, which in turn deepens market depth and stabilizes the currency. This dynamic is particularly relevant for investors seeking exposure to emerging markets with a lower volatility profile.

Policy Tailwinds and Economic Resilience

South Korea's economic fundamentals provide additional tailwinds. The IMF forecasts 1.8% GDP growth in 2026, supported by accommodative monetary policy and a rebound in global demand for tech and automotive exports. Meanwhile, the Bank of Korea's 24-hour RTGS system will enhance monetary policy transmission, ensuring that rate cuts and stimulus measures are swiftly reflected in market conditions. These factors, combined with the government's commitment to corporate governance reforms and English-language disclosures, address MSCI's remaining concerns and bolster investor confidence.

Conclusion

South Korea's 24-hour FX market reforms represent a strategic inflection point for global investors. By addressing liquidity constraints, enhancing market accessibility, and aligning with MSCI criteria, these measures are set to catalyze a wave of institutional inflows and asset appreciation. For investors with a medium-term horizon, the current undervaluation of Korean equities and the won's growing international appeal make this an opportune moment to position for a potential MSCI upgrade and the broader integration of South Korea into global capital markets.