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South Korea Joins Major FTSE Russell Index After Bond Market Reforms
(Bloomberg) -- South Korea will join FTSE Russell’s major global bond index next year, paving the way for tens of billions of dollars of inflows after an overhaul of the country’s financial market infrastructure.
The index provider is also adding India to its gauge of emerging market debt from 2025, citing the government’s progress in improving market access. Vietnamese stocks, meantime, 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 the appeal of Asian debt grows due to falling yields in the US and Europe. When a new member gets added to a benchmark like FTSE’s $30 trillion World Government Bond Index, 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 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.
India’s debt showed little impact from the news, with the yield on the 10-year bond down two basis points to 6.79%. Korea’s financial markets were shut for a holiday.
FTSE Russell commended both 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 $56 billion of inflows, with the fresh funds helping to manage government finances, according to the finance ministry in Seoul. For India, Mitsubishi UFJ Financial Group Inc. put the figure at $2 billion to $5 billion.
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.
“WGBI is the most selective club for advanced economies,” Finance Minister Choi Sang-mok said at a briefing in Seoul on Wednesday. Joining it shows “how investors view the South Korean economy and markets.”
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 $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 been 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 EM choice sets, becoming a more and more important part of those portfolios.”
India 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 roughly $14 billion of inflows this year. It’s due to join Bloomberg’s local currency government bond index in January.
Bloomberg LP is the parent company of Bloomberg Index Services Ltd., which administers indexes that compete with those from other service providers.
--With assistance from Shery Ahn, Haidi Lun, Ronojoy Mazumdar, Jaehyun Eom, Greg Ritchie, Joanna Ossinger, Maria Elena Vizcaino, Youkyung Lee and Ezra Fieser.
(Adds finance minister’s comment in eleventh paragraph)