South Korea and Taiwan, two countries that are part of ETFs such as the Vanguard MSCI Emerging Markets ETF (NYSEArca: VWO), will retain their developing market status because they still lack accessibility. But they remain under review for possible reclassification to developed status a year from now, MSCI said.

In its announcement of its annual reclassification review, MSCI also said further consideration of whether Qatar and the United Arab Emirates ought to be shifted to emerging market status from their current frontier market status will be extended until December of this year. It noted that it needed more time to assess recent changes to those two markets.

MSCI’s annual review is crucial to ETFs such as the $46 billion VWO or its rival fund that uses the same benchmark, the $37 billion iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM). The annual review could have resulted in Korea or Taiwan being dropped from those ETFs, just as it could have meant Qatar and the UAE would have joined them. As it stands, both MSCI’s emerging and frontier market indexes will remain unchanged for now, MSCI said in a press release.

“There have been some improvements in terms of accessibility over the last year,” Remy Briand, a managing director and the global head of index research at MSCI, told journalists in news conference. “However, the main accessibility issues – in particular the lack of full currency convertibility…remain. From that perspective the experience of international institutional investors accessing both markets has not significantly changed compared to last year,” Briand added.

The indexing company, widely considered the market leader in international benchmarks, also said it isn’t adding any new countries for potential reconsideration in next year’s review. It announces changes every June and provides the first warning that changes to its indexes could be coming the following June.

Korea and Taiwan

The indexing firm said Korean authorities have put some measures in place to alleviate frictions and inefficiencies from the lack of currency convertibility and rigidity of the the system used to identify investors and their various investment accounts. It cited as an example revision of the banking act to provide foreign investors additional funding options for securities settlement purposes.

However, it said feedback from investors indicated that their actual experience suggests that whatever changes have been implemented, have had limited effectiveness thus far.

“In addition, anti‐competitive practices have not been eliminated: the provision of stock market data continues to be subject to contractual anticompetitive clauses,” MSCI said in the statement.

On a positive note for Taiwan, MSCI noted that pre‐funding practices, while not completely eliminated, are now less severe following the implementation of a T+2 delivery-versus-payment” settlement cycle.

Qatar and UAE

Changes to delivery versus payment, or DVP, models that were introduced in Qatar and the UAE in May 2011 are the reason why MSCI wants more time to assess the status of the two countries. MSCI noted that market participants haven’t had enough time to take measure of the changes.

“This additional review period will also give more time to the regulators and the stock exchanges to address the remaining concerns raised by international institutional investors,” MSCI said in its press release.

In the press conference, Briand cited ownership limits by foreigners as one of those issues, saying they had been reached on some companies in Qatar.

“As a consequence, the assessment is that under current conditions, MSCI Qatar would not qualify (as an emerging market) under this particular criterion,” Briand said in the news conference.

While it will weigh in on the two Persian Gulf countries in November of this year, a potential reclassification of the two to emerging market status wouldn’t be implemented until November 2012, at the earliest.

Egypt

Briand also briefly touched on Egypt’s status as an emerging market country, which MSCI said earlier this year might come under review because of the civil unrest there that led to the resignation of President Hosni Mubarak had left the stock market closed for almost 40 days.

He said the feedback it has received from investors suggests that trading on the Egypt’s stock exchange is going smoothly.

“As a consequence, MSCI will not be reviewing the eligibility of Egypt, but will continue to monitor the situation.”