South Korea is set to join FTSE Russell’s major global bond index next year, marking a significant milestone that could lead to tens of billions of dollars in inflows. This development follows a comprehensive overhaul of the country’s financial market infrastructure, enhancing its appeal to international investors.
Key Developments in the Bond Market
FTSE Russell’s decision to include South Korea in its World Government Bond Index (WGBI) comes amid growing interest in Asian debt due to decreasing yields in the US and Europe. When countries are added to benchmarks like FTSE’s $30 trillion WGBI, global funds tracking these indices must purchase that country’s debt, boosting demand and inflows.
Additionally, FTSE Russell announced that India will also be included in its emerging market debt gauge starting in 2025, acknowledging the government’s efforts to improve market access. Meanwhile, Vietnamese stocks are under consideration for an upgrade to emerging market status, and Greek equities are being evaluated for potential inclusion as a developed market.
Market Reactions and Forecasts
Kiyong Seong, lead Asia macro strategist at Societe Generale, believes this inclusion will have a positive impact on Korean financial markets. He predicts that medium-term bonds will rally, resulting in yields declining by 10 to 20 basis points, alongside a strengthening of the South Korean won.
Although Korea’s financial markets were closed for a holiday at the time of the announcement, the news had little immediate effect on India’s debt, with the yield on its 10-year bond slightly decreasing to 6.79%.
Investment Inflows and Economic Implications
South Korea’s accession to the WGBI is expected to attract approximately $56 billion in inflows, which will assist in managing government finances, according to officials in Seoul. For India, inflows are anticipated to be in the range of $2 billion to $5 billion.
Following the integration, Korea is projected to hold a weighting of 2.22% in the WGBI, which will be phased in quarterly over a year starting November 2025. Conversely, India’s government bonds are set to be included in the FTSE’s $4.7 trillion emerging market bond index, achieving a final share of 9.35%, the second highest after China.
Officials’ Perspectives on Inclusion
Finance Minister Choi Sang-mok expressed that joining the WGBI reflects how investors perceive the South Korean economy and markets. He noted, “WGBI is the most selective club for advanced economies,” highlighting the significance of this inclusion for South Korea.
Meanwhile, India’s government has taken a more subdued approach, focusing on gradual reforms and positioning its economy within mainstream emerging market portfolios. Nikki Stefanelli, FTSE Russell’s global head of fixed income index policy, acknowledged the progress made in India, indicating its rising prominence in investor portfolios.
Conclusion
The inclusion of South Korea and India in FTSE Russell’s indices underscores the growing importance of Asian markets in the global financial landscape. These developments are expected to facilitate increased investment flows, further enhancing the resilience and attractiveness of these economies to foreign investors.
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