South Korean Government's Pursuit of WGBI Inclusion and Its Benefits

 

The South Korean Government's Pursuit of WGBI Inclusion through Japanese Relations and Bond Investor Presentations

Introduction

The South Korean government is focusing on strengthening its relations with Japan in an effort to be included in the FTSE World Government Bond Index (WGBI). The WGBI serves as a crucial benchmark for global investors when making decisions about government bonds, and inclusion in this index could bring significant economic benefits to South Korea.

Influence of Japanese Investors on the WGBI

Japan is home to one of the world's largest bond markets, and it holds a substantial position within the WGBI. Japanese investors play a major role in the global bond market, and their investment decisions heavily influence the composition of global indices like the WGBI. FTSE Russell, the organization responsible for the WGBI, highly values the opinions of key markets like Japan when determining which countries to include, making the support of Japanese investors crucial.

Diplomatic Efforts and Bond Investor Presentations by the South Korean Government

From July 4 to 5, 2024, South Korea's Vice Minister of Economy and Finance, Yoon-Sang Kim, visited Tokyo to meet with the Chief Investment Officers (CIOs) of Japan's major pension funds and hosted investor presentations for asset management firms and trust banks. During these presentations, Vice Minister Kim emphasized the strengths of the South Korean bond market and recent improvements in the foreign investor environment, aimed at facilitating South Korea's inclusion in the WGBI.

Vice Minister Kim highlighted key regulatory improvements, including the tax exemption on foreign bond investments (January 2023), the abolition of the Foreign Investor Registration System (IRC) (December 2023), the launch of a consolidated bond account system (June 2024), and structural reforms in the foreign exchange market, all of which significantly enhance foreign investors' access to the South Korean bond market.

Japan Investor Presentation Schedule

• July 4
• 15:00: Meeting with Japan's Government Pension Investment Fund (GPIF)
• 16:30: Meeting with Japan's Pension Fund Association (PFA)
• July 5
• 9:30: Roundtable with Japanese Asset Management Firms
• 11:00: Roundtable with Japanese Trust Banks

Meeting between Deputy Prime Minister Choi Sang-mok and New Japanese Ambassador Koichi Mizushima

On August 21, 2024, Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok met with Koichi Mizushima, the newly appointed Japanese Ambassador to South Korea, at the Government Complex Seoul. During the meeting, they discussed expanding economic cooperation between the two countries and strengthening collaboration through bilateral and multilateral frameworks.

Deputy Prime Minister Choi welcomed Ambassador Mizushima's appointment and noted that economic cooperation between the two countries has expanded into various fields, including energy and venture capital. Ambassador Mizushima also expressed his appreciation for the recent progress in economic cooperation between the two countries. Deputy Prime Minister Choi emphasized the importance of continued cooperation through various international platforms, such as the Korea-Japan Finance Ministers' Meeting, the APEC Summit and Finance Ministers' Meeting, and the ASEAN+3 and G20 forums. Ambassador Mizushima agreed on the importance of collaboration through bilateral and multilateral frameworks and commended South Korea's efforts to improve foreign investment accessibility.

Benefits of WGBI Inclusion

The South Korean government's active pursuit of WGBI inclusion is driven by several clear benefits. If included in the WGBI, South Korea stands to gain the following advantages:

• Massive Capital Inflows: Inclusion in the WGBI could attract trillions of dollars in global capital to the South Korean bond market, providing stability and potentially lowering government borrowing costs by reducing bond yields.
• Increased International Credibility: Being included in the WGBI would signal that South Korea's financial markets are internationally recognized and trusted.
• Won Currency Stabilization: The influx of foreign capital could stabilize the value of the South Korean won, reducing volatility in the foreign exchange market and providing a more stable environment for Korean exporters and importers.
• Development of Domestic Financial Markets: WGBI inclusion would further globalize South Korea's financial markets, laying the groundwork for broader development across the country's financial sector.

Global Media Reactions

Global media outlets have taken note of South Korea's efforts to gain WGBI inclusion, recognizing the significant economic benefits that could follow. With a decision from FTSE Russell expected soon, South Korea has introduced various policy measures, such as improving market accessibility and abolishing foreign investor registration requirements, to bolster its chances of being included.

Conclusion

The South Korean government's diplomatic outreach to Japan in pursuit of WGBI inclusion is a strategically important move, both economically and politically. Securing the support of Japanese investors is a key step towards achieving this goal, which could strengthen South Korea's position in the global financial market and bring substantial benefits to its economy. As South Korea continues to enhance its relations with Japan, it remains committed to realizing its objective of WGBI inclusion.

We Hope for South Korea's Inclusion in the WGBI INDEX!

We sincerely hope that the South Korean government's efforts and cooperation with Japan will bear fruit and that South Korea will successfully be included in the WGBI.

Looking forward to a stronger position for South Korea in the global financial market...