South Korea's weighting in the MSCI Emerging Markets (EM) Index, a global benchmark, has more than doubled in eight months, narrowing the gap with China to within striking distance. Despite foreign investors dumping nearly 94 trillion won worth of Korean shares this year, the country's weight in the international index has risen as the KOSPI has continued its rapid ascent. An unusual phenomenon has also emerged, with the foreign ownership ratio relative to market capitalization hitting an all-time high.
According to the Korea Center for International Finance on Wednesday, country weightings within the MSCI EM Index as of May were estimated at Taiwan 25%, China 22%, Korea 21%, and India 11%. At the end of the third quarter of 2025, the figures stood at China 31.2%, Taiwan 19.4%, India 15.2%, and Korea 10.97% — a stark contrast to current levels. In less than eight months, Taiwan has taken the top spot, and the gap between Korea and China, which had exceeded 20 percentage points, has narrowed to within 1%.
Korea's weighting could rise further and potentially overtake China. The Korea Center for International Finance noted that Taiwan's weighting in the MSCI EM Index surpassed China's for the first time in 19 years, citing the artificial intelligence (AI) ecosystem centered on TSMC, high shareholder returns, and efforts to improve the investment environment. This mirrors the structure of Korea's stock market, which is currently undergoing a government-led "value-up" initiative centered on memory semiconductors.
The increase in Korea's weighting within the MSCI EM Index appears to contradict the large-scale "Sell Korea" trend by foreign investors that has continued throughout this year. Foreign investors have net-sold 94 trillion won on the KOSPI market this year, yet the foreign ownership ratio relative to total market cap has actually risen to 39.33% from 36.67% at the start of the year.
The securities industry interprets this as evidence of foreign rebalancing driven by a semiconductor-led market. This year, the KOSPI has been pushed higher by memory semiconductor stocks including Samsung Electronics and SK hynix, as well as shares related to AI infrastructure bottlenecks. Foreign investors mechanically sold as the KOSPI surged, but core leading stocks rallied even faster and grew in size, causing the foreign weighting within the index to expand instead, analysts say.
"If foreign investors had no intention of expanding their Korean stock holdings, net selling of about 230 trillion won should have come out based on the year-start ownership ratio of 36%," said Lee Kyung-soo, an analyst at Hana Securities. "There is a high possibility that the KOSPI surged at an unusual pace, leaving foreign investors unable to fully complete their weighting adjustments within the international index."
This is similar to what has occurred in the Taiwanese stock market. The Korea Center for International Finance analyzed that even though foreign investors have continued net selling in the Taiwanese market for several years, retail and institutional investors have driven the index higher. Within the financial investment industry, some observers believe Korea may be moving closer to its long-cherished goal of being included in the developed markets index, beyond the emerging markets index. Hana Securities forecast a more than 60% probability that Korea will be added to the MSCI Developed Markets watch list in June.
