FTSE Russell flags possible inclusion of South Korea in global bond index

SEOUL: FTSE Russell said it could add South Korea to its global bond index following moves by Seoul authorities to improve market access for foreign investors, paving the way for a potentially huge increase capital inflows into the country.

Welcoming the announcement, South Korea’s finance ministry on Friday cited independent research estimates that inclusion in the FTSE World Government Bond Index could help boost its local bond market by up to 90 trillion won. ($63 billion), although he did not specify a time frame. .

He added that South Korea would likely have a 2.0-2.5% weighting in the index, the ninth-largest of the 24 constituent countries if included.

“We expect the real inclusion to stimulate global demand for South Korean government bonds in a stable manner and therefore contribute to further stability in the bond and foreign exchange markets,” the ministry said in a statement.

He expects FTSE Russell, a global index provider owned by the London Stock Exchange Group, to make a final decision in September next year.

The local bond market also cheered the announcement, with futures on South Korean three-year treasury bills rising 0.38 points, despite a sell-off in US treasuries overnight.

“It’s a big deal,” said an official at the Seoul branch of a foreign bank, although he added that any impact on the local market this year could be limited as investors were mainly focused on US Federal Reserve interest rate movements.

Seeking South Korea’s inclusion in the index, the finance ministry has proposed a bill that would remove a tax on foreign investment in its bond market, which is currently being considered by the National Assembly for final approval.

The ministry also said it was preparing to allow bond market transactions through international central securities depositories, such as Euroclear and Clearstream, for the better convenience of foreign investors.

($1 = 1,428.1 won)

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