Seoul: South Korea will join FTSE Russell’s major global bond index next year, capping an overhaul of its financial market infrastructure in the hopes of attracting tens of billions of US dollars of foreign investment.
The index provider is also adding India to its gauge of emerging-market debt from 2025, citing officials’ progress in improving market access.
Vietnamese stocks, meanwhile, remained on a watch list for an upgrade to emerging market, while Greek equities were added to a list for a potential inclusion as a developed market.
The announcement comes just as overseas interest in Asian debt markets picks up, as yields in the United States and Europe decline. When a new member gets added to a benchmark like FTSE’s US$30 trillion World Government Bond Index (WGBI), global funds tracking the gauge need to buy that country’s debt.
Even so, the green light for Seoul is something of a surprise after Morgan Stanley and Goldman Sachs Group Inc flagged the risk of a delay due to slow uptake on reforms.
“This development is expected to have a positive impact on the South Korean financial markets,” said Kiyong Seong, lead Asia macro strategist at Societe Generale SA.
He sees medium-term bonds rallying, with yields declining by 10 to 20-basis points and a strengthening in the won.
FTSE Russell commended both South Korea and India on the steps taken to improve access for foreign investors.
Officials in Seoul keenly pursued inclusion in the WGBI, extending trading hours for the won and making it easier for overseas investors to settle trades via Euroclear.
Accession is expected to attract US$56bil of inflows, with the fresh funds helping to manage government finances, according to the Finance Ministry in Seoul.
South Korea’s weighting in the WGBI is projected to be 2.22%, after it gets phased in on a quarterly basis over a one-year period from November 2025.
India’s government, by contrast, kept a lower public profile.
While joining flagship indexes can attract global funds, it can also pose risks to emerging economies frequently buffeted by capital outflows.
South Korea will “carefully monitor” both the bonds and the currency market to ensure there’s no volatility in response to FTSE’s announcement, a Finance Ministry official told Bloomberg.
Yet with Russia under sanction due to its invasion of Ukraine, emerging-market investors have been almost uniformly bullish on India’s debt and pushed for its inclusion in benchmarks.
India’s debt will be added to the FTSE’s US$4.7 trillion emerging market bond index as of next September over a six month period, with a final share of 9.35%. That’ll be the second-highest after China.
“We’ve seen progress being made over the past few years that we’ve tracked India,” said Nikki Stefanelli, FTSE Russell’s global head of FICC index policy.
“It’s really, I think, clear to us that it is part of the mainstream emerging-market choice sets, becoming a more and more important part of those portfolios,” Stefanelli added.
The world’s fastest-growing major economy already joined JPMorgan Chase & Co’s widely followed emerging market gauge in June to great fanfare despite being regarded as a reform laggard.
India’s index-eligible bonds have drawn more than US$14bil of inflows this year. It’s due to join Bloomberg’s local-currency government bond index in January. — Bloomberg
