Foreigners Withdraw Approximately 2.5 Trillion Won from Domestic Stock Market in September

[Asia Economy Reporter Kim Eunbyeol] Last month, foreign investors withdrew nearly 2.5 trillion won from the Korean stock market.

According to the international finance and foreign exchange market trends announced by the Bank of Korea on the 15th, foreign investment in stocks recorded a net outflow of 2.08 billion USD in September.

This amount is more than twice the net outflow in August (890 million USD), which translates to approximately 2.4496 trillion won based on the average September won-dollar exchange rate (1177.7 won).

Domestic bonds experienced a net outflow for the first time this year.

Foreign investment in domestic bonds decreased by 10 million USD. Although the maturity repayment amount in September was 7.07 billion USD, reinvestment occurred to some extent, so the net outflow was not large. Combining stocks and bonds, foreign securities investment recorded a net outflow of 2.09 billion USD in September, significantly expanding from the August net outflow of 220 million USD.

The credit default swap (CDS) premium for the 5-year Korean government bond (Foreign Exchange Stabilization Fund bond) averaged 24 basis points (1bp = 0.01 percentage points) in September. The Bank of Korea explained that although this was slightly higher than August’s 22bp, it still remained at a low level. CDS is a type of financial derivative that acts as insurance compensating for losses when the issuing country or company defaults. Generally, if the economic risk of the country increases, the premium also rises.

At the end of September, the won-dollar exchange rate was 1169.5 won, down more than 18 won from the end of August (1187.8 won). After mid-September, as the domestic resurgence of COVID-19 eased and considering the prior weakness of the US dollar, the perception that the won’s appreciation was limited was reflected, leading to a rapid decline.

In October, the won-dollar exchange rate further declined as the possibility of agreement on the US economic stimulus package (5th round) increased, reaching 1147.1 won as of the 13th of this month. The daily fluctuation of the won-dollar exchange rate last month was 3.5 won, larger than August’s 2.2 won.

In the third quarter, the average daily foreign exchange transaction volume in the domestic interbank market was 25.16 billion USD, down 1.04 billion USD from the previous quarter (26.19 billion USD), mainly due to a decrease in foreign exchange swap transactions (-1.06 billion USD).

In the third quarter, domestic companies’ forward exchange transactions recorded a net purchase of 7.4 billion USD, down from the previous quarter (+8.8 billion USD). During the same period, the net sale of non-resident’s non-deliverable forwards (NDF) significantly decreased from 16.19 billion USD net sales in the previous quarter to 7.02 billion USD.

This content was produced with the assistance of AI translation services.