(Bloomberg) -- Money managers say South Korea will have to wait until next year to be added to FTSE Russell's global bond index while it may take even longer for India's inclusion into its emerging-market benchmark.
Among 10 global investors surveyed by Bloomberg, only two expected Korea's addition into the World Government Bond Index to take place as early as in the September review. The rest including BNP Paribas Asset Management and abrdn plc said it will likely happen next year as the country needs to make more progress in improving market accessibility.
A potential inclusion has been a keenly awaited event ever since FTSE Russell added Korea to the watch list in 2022. HSBC Global Research says it may attract foreign inflows of as much as $70 billion. The government has taken steps to facilitate foreigners' access, most recently agreeing to open an omnibus account with Euroclear Bank SA. India, on the other hand, has made little progress in resolving operational issues.
“There are a few criteria FTSE requires South Korea to fulfill before accepting it into the World Global Bond Index,” said Jean-Charles Sambor, head of emerging markets fixed income at BNP Paribas Asset Management. “The more possible time line is March 2024.”
Foreigners purchased a net $49 billion of Korean bonds this year, making it the most popular debt market in Asia. They bought $3.4 billion of Indian notes.
While the actual opening of the omnibus account is scheduled in the first half of next year, other changes may take longer. The government plans to let some offshore firms participate directly in the local interbank currency market as soon as the second half of 2024, a change essential to get inclusion in key indexes.
Korea's reforms “appear to be steps in the right direction in making it simpler for foreign investors to buy local bonds,” said Sanjay Shah, investment director of Asian fixed income at HSBC Asset Management in Singapore. “We remain positive on Korean duration,” as expectations that the Bank of Korea's rate has peaked add to the securities attraction, he said.
In March, FTSE Russell held off on adding both Korea and India to its key bond indexes and kept them on the watch list. The next review is scheduled Sept. 28.
For India, a majority of the investors surveyed don't expect the South Asian country to be added to FTSE Russell's emerging market bond index any time soon as many issues raised in the March review — improvement in market structure, operational issues regarding the settlement cycle, trade matching and tax clearance — remain unresolved.
The Reserve Bank of India has been making informal inquiries with some bond market participants about the impact of allowing settlement of domestic sovereign debt on the Euroclear platform, the Economic Times reported this week. Still, the government is unlikely to give any tax breaks for overseas investors that may use Euroclear for trading Indian sovereign bonds, the report said.
India's push to have its bonds listed on global indexes has stalled in recent years as the nation backed away from any changes to tax policies that will make it easier for the securities to be included in global indexes.
In the absence of further changes, it would be difficult to see India's inclusion in the near future, said Prashant Singh, senior portfolio manager for emerging-markets debt at Neuberger Berman in Singapore. “A lot of issues that have been outstanding for a while still exist and haven't been fully resolved.”
Bloomberg LP is the parent company of Bloomberg Index Services Ltd, which administers indexes that compete with those from other service providers.
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