South Korea is desperately trying to be included in a major global bond index to attract up to $58 billion from the local debt market to save the ailing won, the second worst-performing currency among emerging Asian currencies.
Last month, FTSE Russell, the global index arm of the London Stock Exchange Group, decided to keep South Korea on its watchlist for possible inclusion in its FTSE World Government Bond Index (WGBI).
The Ministry of Economy and Finance plans to hold investor relations sessions in major global financial centers such as the United Kingdom, Hong Kong, Singapore and Japan starting in May, sources said on Monday. government and financial institutions in Seoul.
“The government aims to actively inform on various measures to advance the foreign exchange market ahead of FTSE Russell’s decision on the inclusion of the WGBI,” said a Finance Ministry official.
The index provider’s next review is scheduled for September.
The move comes as the South Korean won has lost 6.5% against the dollar since the start of the year, according to central bank data, becoming the second worst-performing emerging Asian currency after the Thai baht, which weakened by 7%.
Expected bond inflows
FTSE Russell has kept South Korea on its watchlist for possible inclusion in the WGBI since September 2022, saying the country has not yet met government bond market accessibility requirements for foreign investors.
The Ministry of Finance expects the index provider to include the country in the main global bond index in September, as the government has already implemented or is about to implement improvement measures such as the abolition of the registration of foreign investors and the reform of the foreign exchange market.
The government also hopes that Japanese investors, who have a strong influence on the inclusion of the WGBI, will support South Korea, given the strengthening diplomatic relations between the two countries.
According to analysts, around $2.5 trillion of funds worldwide are intended to track the WGBI, which includes government bonds from more than 20 countries, including the United States, the United Kingdom, Canada and the Japan.
South Korean government bonds are expected to account for around 2% to 2.5% of the WGBI once included in the index, attracting between 50 trillion won and 80 trillion won ($36 billion to $58 billion), according to analysts.
These expected bond inflows are expected to lower market interest rates, reducing borrowing costs by up to 1.1 trillion won a year, the government and analysts said.
The local bond market recorded capital outflows of $3.4 billion in March, following inflows of $2.5 billion and $1.9 billion in February and January, the Bank of Korea said early of the month.
The BOK may not cut its policy interest rate in the near term, which is expected to boost Asia’s fourth-largest economy given persistent inflationary pressure. BOK Governor Rhee Chang-yong said on April 12 that it may be difficult to reduce borrowing costs in the second half if oil prices continue to rise.
Write to Kyung-Min Kang at [email protected]
Jongwoo Cheon edited this article.
