(Bloomberg) — South Korea is ticking all the boxes to get its bonds included in the main FTSE Russell index, while India is avoiding a review of its public sector institutions, although the latter will attract global investors. India may have an advantage in participating in the FTSE Russell Index. Related benchmarks.
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On October 8, FTSE Russell will announce its inclusion in benchmarks such as the World Government Bond Index, which tracks $29 trillion of global bonds. The South Korean government hopes that it was able to make a final decision after completely reviewing the operation of its currency and bond markets.
At the same time, India, which joined JPMorgan Chase & Co.'s flagship index despite being an under-reform country, could now join FTSE Russell's $4.6 trillion emerging market bond index. The index provider told investors it had very positive talks with India's securities regulator, according to a document seen by Bloomberg.
Vietnamese stocks are on the watch list for promotion from frontier to emerging market status.
This is the perfect time to gain access to large investors attracted to this position. Global capital is returning to emerging economies after years of losses as Federal Reserve interest rate cuts lower U.S. borrowing costs and encourage investors to seek better returns overseas. It's coming. India's JPMorgan index-linked bonds received $14 billion in inflows by the end of August this year.
“The current environment is certainly favorable for emerging market bonds, with many investors looking for higher yields and diversification,” said Althea Spinozzi, head of fixed income research at Saxo Bank AS in Hellerup, Denmark. . “Inclusion in indexes tends to attract large capital inflows as global investors who track these benchmarks adjust their portfolios.”
The South Korean government estimates that joining the WGBI will bring in up to 90 trillion won ($68 billion). This would be a welcome new source of funding, especially given that the rapidly aging country is expected to ramp up public borrowing next year.
And at first glance, South Korea, which has made numerous attempts over a decade, appears to be the favorite to participate. Since being added to the WGBI watchlist two years ago, the city of Seoul has extended trading hours for the won and created a system with Euroclear so that foreign investors do not need to open an account with a local bank. did. South Korea says it meets all the conditions for inclusion in the index.
However, from July 1st to August 28th, only 26 bond transactions in the country took place via Euroclear. Strategists at Goldman Sachs Group Inc. said such low volumes would likely delay inclusion until 2025, and Morgan Stanley said it expected inclusion next year. .
On the equity side, South Korea has faced further headaches since a ban on short selling was implemented in November. FTSE Russell could warn that the country's stocks are at risk of being downgraded by developed markets. The Dong-A Ilbo newspaper reported last month that the government was in touch with index providers to address concerns.
Even if Korean bonds are not selected this year, “we hope that language will sound a little more positive in the review, given the efforts made to improve access to both bonds and foreign exchange.” said Lo Guan Yi, Head of Asia. Bond income in Singapore M&G investment.
Indian situation
On the other hand, India has no agreement with Euroclear at all. In its previous review in March, FTSE Russell cited India as having a difficult registration process for foreign investors and slow transaction and tax settlements.
That didn't stop JPMorgan from including Indian government bonds in its own tight emerging market bond index in June. After Russia was removed with its invasion of Ukraine, the country benefited from demand for cars to invest in key emerging markets.
India's capital markets regulator said last month that it was working to streamline the registration process for foreign investors buying sovereign debt.
FTSE Russell notes positive talks with India's SEBI on bonds
On the equity side, Vietnam is likely to be promoted from frontier to emerging market for the first time next year, analysts say. The new rules, which remove the requirement for foreign investors to prepare full funds in advance for stock trades – seen as a major sticking point – will only come into effect on November 2.
“There is also demand for local bonds and equities in emerging markets,” said John Harrison, managing director of emerging market macro strategy at TS Lombard in London. “Lower global yields will help encourage investors.”
Bloomberg LP is the parent company of Bloomberg Index Services Ltd., which manages indexes that compete with indexes from other providers.
–With assistance from John Cheng, Subhadip Sircar, and Youkyung Lee.
(Updated to add reference to Korean stocks in 10th paragraph.)
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