South Korea has joined the main FTSE Russell index following bond market reforms

(Bloomberg) — South Korea will join FTSE Russell's main global bond index next year, paving the way for billions of dollars in inflows after an overhaul of the country's financial market infrastructure.

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The index provider is adding India to its emerging market debt measure from 2025, citing the government's progress in improving market access. Vietnamese stocks, meanwhile, remain on a watch list for an upgrade to emerging markets, while Greek equities have been added to a list for possible inclusion as a developed market.

The announcement comes as demand for Asian debt increases due to falling yields in the US and Europe. When a new member is added to a benchmark such as FTSE's $30 trillion World Government Bond Index, the global funds that track the gauge must buy that country's debt.

Even so, the green light for Seoul came as a surprise after Morgan Stanley and Goldman Sachs Group Inc identified the risk of delays due to slow reforms.

“This development is expected to have a positive impact on the Korean financial market,” said Kyung Seong, chief Asia macro strategist at Societe Generale SA. He sees medium-term bonds rallying, with yields falling 10 to 20 basis points and gains strengthening.

The 10-year bond yield fell two basis points to 6.79%, showing little impact from India's debt news. Korea's financial markets were closed for the holiday.

FTSE Russell praised both Korea and India for steps taken to improve access for foreign investors. Officials in Seoul sought to deepen integration into the WGBI, extending trading hours for winners and making it easier for foreign investors to settle trades through Euroclear.

The accession is expected to attract $56 billion in inflows, according to Seoul's Ministry of Finance, which helps manage government finances. For India, Mitsubishi UFJ Financial Group Inc put the figure at $2 billion to $5 billion.

Korea's weighting in the WGBI is projected to be 2.22% on a quarterly basis over a one-year period from November 2025.

In contrast, the Indian government keeps a low public profile. While joining the flagship index can attract global funds, it can also pose risks to emerging economies that are hit by frequent capital outflows.

“WGBI is the most select club for advanced economies,” Finance Minister Choi Sang-mok said at a briefing in Seoul on Wednesday. Joining it is “How Investors View South Korea's Economy and Markets.”

Emerging market investors have been almost uniformly bullish on India's debt and pushed for its inclusion in benchmarks.

India's debt will be added to the FTSE's $4.7 trillion emerging market bond index for the six months to next September, with a final quotient of 9.35%. This would be the second highest after China.

“We have seen progress as we have tracked India over the past few years,” said Nikki Stefanelli, Global Head of FICC Index Policy at FTSE Russell. “It's really, I think, clear to us that it's part of the mainstream EM preference set, becoming a more important part of those portfolios.”

India already joined JPMorgan Chase & Co.'s widely followed emerging markets gauge in June, albeit lagging behind on reforms.

India's index-eligible bonds have drawn inflows of about $14 billion this year This is due to join Bloomberg's local currency government bond index in January.

Bloomberg LP is the parent company of Bloomberg Index Services Ltd., which manages indices that compete with other service providers.

–With assistance from Sherry Ahn, Heidi Lun, Ronjoy Mazumder, Jaehyun Eom, Greg Ritchie, Joanna Ossinger, Maria Elena Vizcaino, Yukyung Lee, and Ezra Fischer.

(Finance Minister's comments added in paragraph eleven)

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