Foreigners Selling Domestic Stocks, Greatly Increasing Bond Investments

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] Last month, foreigners withdrew nearly 2.92 trillion won from the Korean stock market. However, as foreign investors significantly increased bond investments centered on public funds, foreign investment funds continued to show net inflows for the second consecutive month.

According to the Bank of Korea on the 11th, foreign stock investment funds saw a net outflow of approximately 2.58 billion USD last month, but bond funds, mainly public funds, increased by 8.35 billion USD, resulting in a total net inflow of 5.77 billion USD. In terms of the stock investment funds, based on the end-of-month KRW-USD exchange rate (1,131.8 won), about 2.92 trillion won was withdrawn. This marked the fourth consecutive month of net outflows in foreign stock investment funds, influenced by profit-taking sales and increased volatility in the US stock market. However, the outflow was less than that of February (-2.86 billion USD).

On the other hand, foreign bond investment funds increased significantly. In March, foreign bond investment funds amounted to 8.35 billion USD, continuing net inflows for two consecutive months, mainly centered on public funds.

According to data compiled by the Korea Financial Investment Association, foreigners net purchased a total of 15.7 trillion won last month, focusing on short-term bonds with relatively attractive interest rates compared to the country's credit rating. Among these, government bonds accounted for 8.9 trillion won, and Monetary Stabilization Bonds (Tuanchae) accounted for 5.1 trillion won. As of the end of March, the outstanding balance of domestic bonds held by foreigners increased by 9.4 trillion won from the previous month to 170.9114 trillion won (reflecting matured repayments), marking an all-time high.

The credit default swap (CDS) premium for the 5-year Korean government bond (Foreign Exchange Equalization Fund bond) averaged 22 basis points (1bp=0.01 percentage points) in March, slightly down from 22bp in February, continuing a two-month consecutive decline compared to the previous month. CDS is a type of financial derivative product 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.

The KRW-USD exchange rate was 1,131.8 won at the end of February, up 8.3 won from 1,123.5 won at the end of February. Although investment sentiment improved and South Korea's export indicators were favorable, the US dollar index rose and foreign exchange demand increased, causing a significant rise. Based on the New York foreign exchange market's Dollar Index (DXY), the dollar rose about 1.7% from March 1 to April 7.

The average daily fluctuation of the KRW-USD exchange rate in March was 3.5 won, narrower than 4.1 won in February. In the first quarter of this year, the average daily foreign exchange transaction volume in the domestic interbank market was 28.39 billion USD, an increase of 3.74 billion USD from the previous quarter (24.64 billion USD).

Despite expectations for economic recovery in the US due to the implementation of the 6th economic stimulus package and the announcement of large-scale infrastructure investment plans, the international financial market is constrained by the resurgence of COVID-19 and intensified US-China conflicts, limiting improvements in investment sentiment. While interest rates vary by country, stock prices generally rose, and the US dollar showed strength.

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