FTSE Russell Classifies as Watchlist Country... Possible Inclusion in WGBI as Early as September Next Year
[Asia Economy Sejong=Reporter Kwon Haeyoung] South Korea has been listed as a Watch List country for the World Government Bond Index (WGBI), one of the world's top three bond indices. This means that inclusion in the index could be possible as early as September next year, raising expectations for foreign investment inflows of 50 trillion to 90 trillion KRW in government bonds, a decline in government bond issuance yields, and an enhancement of the country's status.
The Ministry of Economy and Finance announced on the 30th that FTSE Russell, a subsidiary of the London Stock Exchange, classified South Korea on the 29th (local time) as a Watch List country with potential for market accessibility upgrade (Level 1 → Level 2).
FTSE Russell classifies countries twice a year, in March and September, and operates bond indices such as the WGBI based on this classification. The WGBI is one of the world's top three bond indices, indexing government bonds from 23 countries including the United States, the United Kingdom, and Japan, and global bond funds track this index. South Korea is currently at Level 1, and must be upgraded to Level 2 to be included in the WGBI. With this Watch List designation, the possibility of a market accessibility level upgrade and WGBI inclusion decision within next year has increased.
FTSE Russell evaluated that "the South Korean government has been promoting institutional improvements addressing factors that have hindered foreign bond investment, such as tax exemption on foreign investment in government bonds and Monetary Stabilization Bonds, policies to advance the foreign exchange market, and plans to activate government bond trading through the International Central Securities Depository (ICSD), indicating a possibility of level upgrade."
The expected weighting of South Korean government bonds in the WGBI is 2 to 2.5%, ranking ninth among included countries. According to the Korea Financial Research Institute, if South Korea is included in the WGBI, approximately 50 trillion to 60 trillion KRW of foreign investment in government bonds, mainly from WGBI followers, is estimated to flow in. Goldman Sachs, KB Securities, and Hi Investment & Securities recently forecast the inflow scale to be between 60 trillion and 90 trillion KRW, considering the current government bond issuance balance and exchange rates.
The inflow of foreign investment in government bonds is expected to reduce interest costs on government bonds by about 500 billion to 1.1 trillion KRW annually due to lower yields, contributing to fiscal soundness. Stable global demand for Korean government bonds is also expected to strengthen the stability of the government bond and foreign exchange markets.
The Ministry of Economy and Finance plans to closely consult with FTSE Russell to ensure inclusion in the WGBI during the FTSE bond market country classification review scheduled for next year.
Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho stated, "This WGBI Watch List designation is an important milestone recognizing the Korean government bond market as one of the advanced bond markets, resolving the discount on won-denominated bonds and advancing the government bond market." He added, "The Korean government will continue to actively promote institutional improvements so that global investors can easily and quickly access and conveniently invest in the Korean government bond market, and will actively communicate with market participants throughout this process."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
