South Korea is set to join FTSE Russell’s major global bond index next year, marking a significant milestone in its financial market infrastructure overhaul aimed at attracting substantial foreign investment. The index provider will also add India to its emerging market debt gauge starting in 2025, acknowledging the country’s advancements in enhancing market accessibility. Meanwhile, Vietnamese stocks remain under consideration for an upgrade to emerging market status, while Greek equities have been identified as potential candidates for inclusion as a developed market.
This announcement arrives at a time when interest in Asian debt markets is gaining momentum, coinciding with declining yields in the US and Europe. The inclusion of a new member in benchmarks like FTSE’s $30 trillion World Government Bond Index compels global funds that track the index to purchase that country’s debt.
The decision to include South Korea comes as a surprise, particularly after Morgan Stanley and Goldman Sachs raised concerns about potential delays due to slow reform implementation.
“This development is expected to have a positive impact on the Korean financial markets,” remarked Kiyong Seong, lead Asia macro strategist at Societe Generale SA. He anticipates a rally in medium-term bonds, predicting a yield decline of 10 to 20 basis points and a strengthening of the South Korean won.
FTSE Russell commended both South Korea and India for their efforts to enhance access for foreign investors. Seoul has actively pursued inclusion in the World Government Bond Index (WGBI) by extending trading hours for the won and facilitating easier settlement of trades for overseas investors through Euroclear.
The accession is projected to draw in $56 billion in inflows, which will aid the management of government finances, according to South Korea’s finance ministry.
Once fully phased in over a year starting in November 2025, South Korea is expected to hold a 2.22% weight in the WGBI.
In contrast, India has maintained a lower public profile regarding its bond market. While joining major indexes can attract global funds, it also poses risks for emerging economies vulnerable to capital outflows.
South Korea’s finance ministry has indicated that it will “carefully monitor” both the bond and currency markets to prevent volatility following FTSE’s announcement.
With Russia facing sanctions due to its invasion of Ukraine, investors in emerging markets have become increasingly bullish on Indian debt, advocating for its inclusion in benchmarks.
India’s bonds will be incorporated into FTSE’s $4.7 trillion emerging market bond index starting next September, over a six-month period, with a final allocation of 9.35%, making it the second-largest weight after China.
“We’ve observed substantial progress in India over the past few years,” noted Nikki Stefanelli, FTSE Russell’s global head of fixed income index policy. “It is increasingly evident that India is becoming a key component of mainstream emerging market portfolios.”
India, recognized as the world’s fastest-growing major economy, joined JPMorgan Chase & Co.’s widely followed emerging market gauge in June, garnering significant attention despite its reputation as a reform laggard. This year, India’s index-eligible bonds have attracted over $14 billion in inflows and are slated to join Bloomberg’s local currency government bond index in January.
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