Foreign Investors Realize Gains... Net Sell of 2.4 Trillion KRW in Domestic Stocks Last Month

[Image source=Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] In December last year, foreign investors realized profits in the domestic stock market, leading to a net outflow of stock investment funds for the first time in three months. In November, they had purchased domestic stocks worth $5.52 billion (approximately 6 trillion KRW), but as the KOSPI index continued its upward trend, they engaged in profit-taking sales. Amid sustained risk appetite in the international financial markets, the Korean won maintained its strength.

According to the "International Financial and Foreign Exchange Market Trends since December 2020" report released by the Bank of Korea on the 8th, foreign investment funds in domestic securities turned to net outflow in December, mainly driven by stocks. Stocks saw an outflow of $2.19 billion (approximately 2.4 trillion KRW), bonds $170 million, totaling a net outflow of $2.36 billion.

In November last year, foreign investment in domestic stocks recorded a net inflow of $5.52 billion, resulting in a total securities investment inflow of $5.07 billion, but in December, stock funds shifted to net outflow.

Despite large-scale bond maturities, bond funds saw a reduction in net outflow from $450 million to $170 million due to increased incentives for arbitrage trading and inflows of private funds.

In December, external foreign currency borrowing conditions improved as the spread on long-term borrowing rates of domestic banks and the CDS premium on foreign exchange stabilization bonds declined compared to the previous month.

With the continued weakness of the US dollar, the Korean won maintained its strength. From December 1 to the 6th last year, the won appreciated by 1.9%. The won-dollar exchange rate fell from 1,106.5 KRW at the end of November to 1,085.6 KRW on the 6th.

During the same period, Turkey's currency showed the strongest appreciation among major countries at 6.9%. Russia (3.7%), South Africa (2.7%), Mexico (2.7%), and China (2.0%) also saw currency appreciation. The euro also strengthened by 3.3% as the US dollar weakened.

A Bank of Korea official explained, "Despite the resurgence of COVID-19, risk appetite persisted due to expectations of additional economic stimulus measures such as the start of vaccinations and the US Congress's approval of the economic relief package," adding, "Global stock prices and US Treasury yields rose, while the US dollar weakened."

In particular, South Korea posted a large current account surplus, and with a significant rise in domestic stock prices, the won-dollar exchange rate showed a downward trend. The KOSPI index rose 14.5% from December 1 to the 6th last year, outperforming the MSCI Emerging Markets index increase of 9.1%.

In December, the volatility of the won-dollar exchange rate decreased compared to the previous month. The exchange rate fluctuation in December was 3.5 KRW, down from 4.1 KRW in the previous month, and the volatility rate also fell from 0.36% to 0.32% during the same period.

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