Korean inclusion in FTSE Russell bond index seen shoring up local markets
Inclusion could draw up to $60 bln into South Korea's bond market
Analysts expect boost for the won and stock market
Reforms include omnibus account for bonds, extended trading hours
By Cynthia Kim, Yena Park
SEOUL, Oct 9 (Reuters) -The surprise inclusion of South Korean sovereign bonds in the FTSE Russell's benchmark bond index is expected to give the won currency a boost on Thursday and attract billions of dollars of inflows over the next few years.
South Korea's government has projected the inclusion to the World Government Bond Index could draw as much as 80 trillion won ($59.7 billion) into its $2.2 trillion bond market, a welcome source of funds for the world's fastest-aging country as welfare costs look set to surge.
The inflows are also expected to provide a shot in the arm for the won, which is down 4% against the dollar so far this year and a slumping stock market, analysts say.
Korea's financial markets are closed on Wednesday for a public holiday so are set to react on Thursday.
"For Korea, the inclusion means steady and stable source of money inflows and signals that the 'Korea discount' could be eased," said Kim Han-soo, an analyst at the Korea Capital Market Institute.
The Korea discount refers to a tendency for South Korean companies to have weaker valuations than global peers due to red tape, low dividend payouts and the dominance of opaque conglomerates known as chaebols.
"Korea's unique, restricted FX market has always been a problem, but the accession means global investors now approve of the system," said Kim, referring to South Korea's efforts to increase participation by foreign banks in currency markets.
The FTSE Russell decision follows President Yoon Suk Yeol's broader reforms to eliminate the Korea discount and boost inflows by getting the country into top-shelf indexes such as the WGBI and MSCI's developed market benchmarks.
Among the reforms South Korea has adopted to boost foreign access to financial markets are the launch of an omnibus account for Korean treasury bonds with securities settlement house Euroclear, allowing of overdrafts in the won through the International Central Securities Depository, and extended onshore trading hours for the won.
Despite these efforts, the won has lost ground this year and while the KOSPI .KS11 has fallen 2.3%, underperforming the S&P 500's .SPX and Nikkei's .N225 strong gains.
Seoul's reform efforts were also clouded by the government's reimposition of a full ban on stock short-selling last year, which prompted index provider MSCI Inc. in June to retain South Korea's classification as an emerging market.
Goldman Sachs and Morgan Stanley recently said Korea's addition to the FTSE Russell index may be delayed to next year due to a lack of meaningful global bond settlement volumes using Euroclear.
"It's a surprise decision, and we are temporarily seeing some dollar selling in offshore USD/KRW. There is going to be some more demand for the won-based assets," an FX dealer said, asking not to be named due to internal policies.
Asked to comment on the index provider's decision, director Kwak Sang-hyun at South Korea's finance ministry said Seoul's pitch to FTSE Russell was made on expectations Euroclear settlements would pick up once Korea was added to the index.
"Inclusion will help new investors to settle bonds via Euroclear. The decision is a vote of confidence from global investors, and the inflows will allow Korea to have more fiscal policy room even if government debt increases," said Kwak.
South Korean government bonds are projected to comprise 2.22% of the debt gauge and will be added to the index starting November 2025, which will be phased in over a one-year period on a quarterly basis.
($1 = 1,340.7000 won)
Additional reporting by Jihoon Lee
Editing by Ed Davies and Sam Holmes
면책조항: XM Group 회사는 체결 전용 서비스와 온라인 거래 플랫폼에 대한 접근을 제공하여, 개인이 웹사이트에서 또는 웹사이트를 통해 이용 가능한 콘텐츠를 보거나 사용할 수 있도록 허용합니다. 이에 대해 변경하거나 확장할 의도는 없습니다. 이러한 접근 및 사용에는 다음 사항이 항상 적용됩니다: (i) 이용 약관, (ii) 위험 경고, (iii) 완전 면책조항. 따라서, 이러한 콘텐츠는 일반적인 정보에 불과합니다. 특히, 온라인 거래 플랫폼의 콘텐츠는 금융 시장에서의 거래에 대한 권유나 제안이 아닙니다. 금융 시장에서의 거래는 자본에 상당한 위험을 수반합니다.
온라인 거래 플랫폼에 공개된 모든 자료는 교육/정보 목적으로만 제공되며, 금융, 투자세 또는 거래 조언 및 권고, 거래 가격 기록, 금융 상품 또는 원치 않는 금융 프로모션의 거래 제안 또는 권유를 포함하지 않으며, 포함해서도 안됩니다.
이 웹사이트에 포함된 모든 의견, 뉴스, 리서치, 분석, 가격, 기타 정보 또는 제3자 사이트에 대한 링크와 같이 XM이 준비하는 콘텐츠 뿐만 아니라, 제3자 콘텐츠는 일반 시장 논평으로서 "현재" 기준으로 제공되며, 투자 조언으로 여겨지지 않습니다. 모든 콘텐츠가 투자 리서치로 해석되는 경우, 투자 리서치의 독립성을 촉진하기 위해 고안된 법적 요건에 따라 콘텐츠가 의도되지 않았으며, 준비되지 않았다는 점을 인지하고 동의해야 합니다. 따라서, 관련 법률 및 규정에 따른 마케팅 커뮤니케이션이라고 간주됩니다. 여기에서 접근할 수 있는 앞서 언급한 정보에 대한 비독립 투자 리서치 및 위험 경고 알림을 읽고, 이해하시기 바랍니다.
