Global capital inflows into Korea's domestic market are accelerating following the inclusion of Korean treasury bonds in the World Government Bond Index (WGBI), with the government stepping up efforts to attract more investment from Japan.
The Ministry of Economy and Finance (MOEF) announced Monday that Heo Seung-chul, director general for treasury policy, held an investor relations (IR) roadshow in Tokyo on the 16th and 17th of this month, targeting nine institutions including FTSE Russell, Japan's Government Pension Investment Fund (GPIF), major asset managers and global custodian banks. The roadshow was designed to review the actual investment activities and future plans of Japanese investors following the WGBI inclusion in April.
Japanese investors said they began investing in Korean treasury bonds following the WGBI inclusion and plan to continue increasing their investments through November, when the inclusion weighting expands. Some institutions are still in preparatory stages such as opening accounts, suggesting that capital inflows will expand gradually.
According to the MOEF, foreign investors' net purchases of Korean treasury bonds totaled approximately 7.7 trillion won from the 30th of last month through the 13th of this month. Japanese investors accounted for 2.8 trillion won of that amount. The market expects approximately 20 trillion to 30 trillion won of Japanese capital to flow in by November this year as a result of the WGBI inclusion effect.
However, the effect on treasury bond yields (bond price increases) has been limited so far. Kim Sung-soo, an analyst at Hanwha Investment & Securities, said, "Foreign capital inflows from the WGBI inclusion are being confirmed," but added that "despite strong buying at month-end and the start of the month, market interest rates have not declined noticeably."
Difficulties in the investment process were also raised during the roadshow. Japanese investors requested improvements to the investment environment through Euroclear, an international central securities depository (ICSD), and expanded liquidity for long-dated bonds.
The government plans to review related institutional improvements through its "WGBI Continuous Monitoring and Investment Attraction Task Force." "We will do our best to ensure foreign investors do not feel any obstacles," Heo said. "We will continue to improve the Korean treasury bond market in line with global standards."
