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| gettyimagesbank |
By Anna J. Park
A recent Goldman Sachs report positively evaluates the possibility of Korea's inclusion in the FTSE World Government Bond Index (WGBI) next year.
The WGBI is a recognized leading benchmark that measures the performance of fixed-rate, local currency, investment-grade sovereign bonds from over 20 countries. The global treasury index is followed by major fund managers and large asset owners around the world.
According to the report published earlier this week, Korea's actual inclusion into the index could happen as early as June 2023.
"In the best-case scenario, actual inclusion could happen in June 2023, or more likely September 2023. In terms of process, the FTSE WGBI conducts two reviews per year in March and September. Korea would first need to be put on the watch list for at least six months before it could be included at the next biannual meeting," the Goldman Sachs report explained.
The report pointed out that the level of commitment and policy support by the Korean government is fundamentally different from its previous failed attempt to be included in the global bond index in 2009.
"The chances of Korea's inclusion in the WGBI seem to be higher than before. The plan for the WGBI inclusion has been formulated in a broad context of upgrading Korea's capital and currency markets as part of the new government's top policy agenda," the report said.
The two key criteria for inclusion into the index are credit ratings and market accessibility. Korea satisfies the former requirement, as its credit ratings of AA by S&P and Aa2 by Moody's are already above the minimum required sovereign ratings.
However, its market accessibility, evaluated by FTSE's Market Accessibility in the four sub-categories of regulatory environment, foreign exchange (FX) market structure, bond market structure and global settlement and custody, is lower than the minimum required for the WGBI inclusion.
The report anticipated to see further progress in the FX market structure, as well as further tax exemptions for non-resident investors, which are deemed to increase the possibility of meeting the market accessibility criteria.
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