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FTSE Russell said South Korea will continue to remain on the watch list for inclusion to its global bond index — and India for the emerging-market equivalent — extending the countries’ wait to be added to the key indexes by at least another six months.

“The South Korean market authorities have undertaken, or are in the process of undertaking, several initiatives intended to improve the structure and accessibility of the South Korean capital markets for international investors,” FTSE said in a statement on Thursday.

A potential inclusion has been a keenly awaited event in South Korea ever since FTSE Russell added the country to the watch list in 2022. HSBC Global Research said it may attract foreign inflows of as much as $70 billion, while the Korean government had estimated up to 90 trillion won ($68 billion) of inflows.

Korean authorities have been intensifying efforts to improve the country’s market systems to court more foreign investors, most recently reaching an agreement with Euroclear Bank SA to open an omnibus account for the nation’s Treasury bonds. The government has said it will also extend the won’s onshore market trading hours, and let a broader range of global investors participate in the interbank currency market.

Bond Bulls in Korea and India Need to be Patient on Index Boost

But those reforms will only be implemented as early as next year. Eight out of 10 global fund managers surveyed by Bloomberg earlier this month said they saw a more likely chance for Korea’s inclusion to happen in 2024, citing the work that’s left for Korean authorities to improve access to its markets. 

“For Korea, the policymakers are making the right noises, so it is likely more a case that they want to see the execution,” said Philip McNicholas, Asia sovereign strategist at Robeco Group in Singapore. “As long as they follow through with the proposed changes to improve market access,” inclusion is a matter of time, he said.

Korean markets are shut for a holiday on Friday while Indian markets are yet to open for trading.

JPMorgan said last week that it will add India to its flagship emerging market bond index, a move that Goldman Sachs projects will draw over $40 billion to the nation’s markets. A similar decision from FTSE would have paved the way for even more igher foreign inflows and helped further reduce the cost of the government’s plan to borrow 15.4 trillion rupees ($185 billion) in the fiscal year that began in April. 

India still doesn’t meet criteria including the “efficiency of Foreign Portfolio Investors registration” and “operational issues related to the settlement cycle, trade matching, and tax clearance process,” FTSE said. 

Bloomberg LP is the parent company of Bloomberg Index Services Ltd., which administers indexes that compete with those from other service providers.

--With assistance from Zijia Song and Matthew Burgess.

(Updates with fund manager comments in sixth paragraph)

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