(Bloomberg) -- South Korea’s inclusion in a key bond index is likely to be delayed until 2025 due to slow investor uptake on settling bond trades internationally, according to analysts at Goldman Sachs Group Inc.
FTSE Russell kept South Korea on the watch list for inclusion in its World Government Bond Index in March, and since then Korean officials have extended the trading hours of the currency and worked with Euroclear Bank SA to make it easier for foreign investors to buy the nation’s bonds.
“Given that Euroclearability is the key factor for index inclusion as we highlighted before, and it appears to us that more progress is still likely needed on this front, we think Korea’s entry into FTSE WGBI is likely going to be delayed until 2025,” Danny Suwanapruti and colleagues wrote in a note to clients.
The next FTSE Russell index review is scheduled to be published after US markets shut on Oct. 8. Barclays Plc has also said it expects an announcement only next year.
Read: Korea’s ‘Back Office’ Is Ready for Bond-Index Inclusion Push
Korea introduced an “omnibus” account system with clearing house Euroclear, which allows global bond investors to use their existing accounts to invest in local fixed-income securities instead of opening a separate account at a local bank. In practice, though, Goldman still sees barriers.
“The broad feedback from market participants is that the actual take-up of investors settling on Euroclear has been fairly light, as investors have to acquire a tax waiver from the Korean authorities before they can trade / settle on the Euroclear platform,” the note said.
London Stock Exchange Group Plc-backed FTSE Russell did not immediately respond to an emailed request for comment on Wednesday.
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--With assistance from Aline Oyamada.
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