Korea yet to join global bond index for capital inflows

South Korea has so far failed to be included on a global major bond index, denting hopes for capital inflows into Asia’s fourth-largest economy, although the government pledged to keep improving systems for possible inclusion this year.

FTSE Russell, the global index subsidiary of London Stock Exchange Group, said on Wednesday it is keeping South Korea on the watch list for potential inclusion in its FTSE World Government Bond Index (WGBI).

“South Korea will remain on the FTSE Fixed Income Country Classification Watch List for the potential reclassification of its Market Accessibility Level from 1 to 2,” said FTSE Russell in a statement.

“FTSE Russell acknowledges that local market authorities have made meaningful progress in the implementation of initiatives intended to improve the accessibility of South Korean government bonds for international investors, which would facilitate the fulfillment of the criteria for a Market Accessibility Level of 2 and inclusion in the FTSE WGBI.”

The index provider classifies only countries with bond markets having the highest grade and with bond market accessibility from Level 0 to Level 2 qualify for inclusion in the WGBI, one of the world’s top three bond indices.

FTSE Russell added South Korea to the watch list for potential inclusion in the WGBI in September 2022.

MEANINGFUL PROGRESS

In the latest statement, FTSE Russell said the country improved the accessibility of government bonds for international investors, which would facilitate the fulfillment of the criteria for Market Accessibility Level 2.

Those measures included the connectivity with international central securities depositaries (ICSDs), the abolishment of foreign investor registration and the foreign exchange market reform.

“Ahead of its next scheduled review in September 2024, FTSE Russell will continue to monitor the positive developments in the South Korean government bond market towards the successful fulfillment of the criteria ... ” FTSE Russell said.

The government pledged to keep enhancing accessibility by implementing reform measures as scheduled for inclusion in the WGBI in September.

“We vow to improve the system for foreigners’ investments without a hitch to be included in the WGBI this year,” said the finance ministry. “We will also increase communication with global investors as confidence in accessibility to the Korean government bond market and attractiveness of investments are also decisive factors.”

About $2.5 trillion of funds worldwide was estimated to track the WGBI, which includes government bonds from 24 countries such as the US, the UK, Canada and Japan, analysts said.

The South Korean government bond market is expected to see inflows of $60 billion once included in the index, according to Meritz Securities Co. in Seoul.

Write to Kyung-Min Kang at kkm1026@hankyung.com
 

Jongwoo Cheon edited this article.