South Korea's hopes for inclusion in the FTSE Russell World Government Bond Index (WGBI) were dashed again on March 27th, but the government vowed to continue its efforts to meet the inclusion criteria by year's end.
The WGBI, a leading global benchmark for sovereign debt, includes bonds from over 20 countries, attracting trillions of dollars in investment. South Korea has sought inclusion since 2022 and was designated a watchlist candidate in September.
While the country meets the WGBI's government bond issuance and creditworthiness standards, its market accessibility has been deemed insufficient. FTSE Russell, the index manager, assigns a staged ranking (0-3) to bond markets, including those of watchlist countries. South Korea currently sits at stage 1.
FTSE Russell acknowledged the South Korean government's ongoing efforts to improve access for international investors, citing eliminating tax burdens on foreign government bond investments and abolishing the Foreign Investor Registration System.
The government plans a series of additional measures, including opening a dedicated government bond account at the International Organization for Deposits and Securities (ICSD) in June. This will streamline foreign investor participation through established clearinghouses like Euroclear and Clearstream.
Furthermore, a "foreign exchange market structural improvement plan" is underway, allowing direct participation by foreign financial institutions and extending trading hours. Pilot transactions for these changes have already begun.
The Ministry of Strategy and Finance emphasized the significance of WGBI inclusion, highlighting not just the potential inflow of investment funds but also the contribution to the stability of South Korea's bond and foreign exchange markets. The Ministry intends to heighten communication with global investors, acknowledging it as a crucial factor in the inclusion decision.
South Korea's continued push for WGBI inclusion reflects its ambition to enhance its integration with global financial markets and attract more excellent foreign investment.
