On October 8, FTSE Russell announced that South Korea will be included in the World Government Bond Index (WGBI) starting November 2025, with an estimated final weight of 2.22% in the index, which currently has a market size of $30 trillion. Additionally, India will be included in the FTSE Emerging Markets Government Bond Index (EMGBI) beginning September next year, with a 9.35% weight, making it the second-largest component after China in this index, which has a market cap of $4.6 trillion.
This move is expected to attract billions of dollars in foreign investment for both countries. For South Korea, this decision reflects the results of months of proactive efforts and comprehensive reforms aimed at enhancing its financial market infrastructure. According to Jean-Jacques Joints, Chief Asia Macro Strategist at Société Générale, “This development is expected to bring a positive impact on the South Korean financial market,” predicting that medium-term bonds will rise and yields could fall by 10 to 20 basis points, strengthening the Korean won as a result.
However, on October 9, the Indian bond market seemingly remained unaffected by the news, with the yield on 10-year bonds only dropping 2 basis points to 6.79%. South Korea’s markets were closed for a national holiday on the same day.
The South Korean Ministry of Economy and Finance estimates that inclusion in the WGBI could attract as much as $56 billion in foreign investments, which would assist the government in managing its finances. Meanwhile, MUFG forecasts that India could see foreign inflows of $2 to $5 billion into its bond market due to this development.
Interestingly, the decision to include South Korea caught the market off guard, as both Morgan Stanley and Goldman Sachs had previously indicated that the country’s inclusion might be delayed due to slow progress in reforms.
FTSE Russell’s recommendation for the inclusion of both South Korea and India is based on the measures these countries have taken to enhance their openness to foreign investment. Seoul officials have been actively advocating for South Korea’s inclusion in the WGBI, extending trading hours for the Korean won and allowing overseas investors easier settlement of trades through Euroclear.
In contrast, the Indian government has maintained a relatively low profile in its pursuit of index inclusion. While joining the flagship index could attract international capital, there are concerns that emerging economies might face the risk of capital outflows. Despite these concerns, emerging market investors generally hold a positive outlook on the Indian bond market and actively support its inclusion in benchmark indices.
Stephanie Lee, Global Head of FICC Index Policy at FTSE Russell, commented, “We have seen progress as we’ve tracked India over the past few years. The country is clearly becoming a part of the mainstream emerging markets portfolio and is increasingly significant within these investments.”
India’s government bonds were already added to JPMorgan’s Emerging Markets Bond Index in June this year and are set to join Bloomberg’s Emerging Markets Local Currency Bond Index in January of the following year.
