(Bloomberg) -- South Korea has met all conditions needed to be included in a key global debt index, Finance Minister Choi Sang-mok said, making the case for a decision next week that could spur billions of dollars of inflows into the country.
“It’s right to assess that we have met all various conditions for the inclusion in the World Government Bond Index,” Choi told reporters Monday in Sejong, South Korea, referring to the FTSE Russell index. He declined to estimate the precise odds of inclusion, which the index compiler is set decide on Oct. 8.
Since being added to a watchlist two years ago, South Korea has completed a range of capital market reforms to make its debt more appealing to foreign investors, including extending trading hours for the local currency. Last year, Korea Securities Depository signed a deal with Euroclear Bank SA to improve access to the nation’s government bond market, where the average daily trading volume exceeded 4 trillion won ($3.6 billion) in August.
“Time is needed for markets to react to the actual implementation of the reforms,” Choi said. Even if South Korea is accepted into the WGBI, the process of inclusion would be gradual given the market’s size, he said, citing China as an example of a previous case.
HSBC Global Research said earlier this month that South Korea could see an inflow of up to $65 billion on a WGBI inclusion. Banks including Goldman Sachs Group Inc. have, however, predicted Korean bonds will only be added to the FTSE index in 2025.
Read: Korea Finance Chief Says Conditions in Place for WGBI Inclusion
“The demand for government bonds is unlikely to be disrupted if the inclusion decision were to be delayed,” said Wee Khoon Chong, strategist at Bank of New York Mellon. The inclusion is a bonus, and the debt will be supported in the months ahead, partly also because of monetary easing expectations, he added.
Choi spoke before a meeting with Bank of Korea Governor Rhee Chang-yong. During their joint press conference before their discussion, Rhee declined to comment on what the central bank’s board might decide when it next sets policy on Oct. 11. The BOK has delayed a policy pivot in recent months, saying an early rate cut could spur household debt increases and threaten financial stability.
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--With assistance from Malavika Kaur Makol.
(Updates with more comments and background)
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