FTSE’s Index Revamp Has Korean, Indian Bond Markets on Watch

The FTSE Russell, a global index provider, has announced significant changes to its country classification review for equities and fixed income, with implications for South Korea and India's bond markets. As of November 2024, Portugal will be added to the FTSE World Government Bond Index (WGBI), while South Korea and India remain on the watchlist for potential inclusion. This article explores the regulatory reforms required for these countries to meet the market accessibility and credit rating criteria for WGBI inclusion, the impact on foreign investment inflows and market liquidity, and the potential risks and challenges associated with their inclusion.


South Korea and India must implement regulatory reforms to enhance market accessibility and improve their credit ratings to meet the eligibility criteria for WGBI inclusion. South Korea is considering easing real-time reporting requirements for bond investors, which could facilitate foreign investment and improve market accessibility. India, on the other hand, needs to address its Market Accessibility Level and consider potential reclassification for inclusion in the Emerging Markets Government Bond Index (EMGBI).

The potential inclusion of South Korean and Indian bonds in the WGBI could attract tens of billions of dollars in foreign investment inflows, as seen in other emerging markets. This increased foreign investment could enhance market liquidity, foster economic growth, and strengthen the countries' financial systems. However, it also presents potential risks and challenges, such as increased volatility, currency fluctuations, and the need for robust risk management strategies.


The inclusion of South Korean and Indian bonds in the WGBI could influence the diversification and performance of global bond portfolios. By providing access to these growing markets, investors can benefit from higher yields and potential capital appreciation. However, it is essential to consider the unique risks and challenges associated with these markets, such as political instability, regulatory uncertainties, and currency fluctuations.

In conclusion, the FTSE Russell's index revamp has placed South Korea and India's bond markets on the watchlist for potential inclusion in the WGBI. To capitalize on this opportunity, these countries must implement regulatory reforms to enhance market accessibility and improve their credit ratings. While the potential benefits of inclusion are substantial, investors must be aware of the associated risks and challenges and develop appropriate risk management strategies to navigate these dynamic markets.