Foreigners Buy 4 Trillion Won of Korean Stocks in August... 'Buying' for Two Consecutive Months

[Image source=Yonhap News]

Despite the inversion of benchmark interest rates between Korea and the United States, foreign investors purchased over 4 trillion won worth of stocks in the domestic stock market.

According to the 'International Finance and Foreign Exchange Market Trends' released by the Bank of Korea on the 14th, foreign investment funds in domestic stocks recorded a net inflow of 3.02 billion USD in August. Based on the won-dollar exchange rate at the end of August (1,337.6 won), this amounts to approximately 4.0396 trillion won. This marks the second consecutive month of net inflow following a turnaround in July (160 million USD).

The Bank of Korea explained, "Despite concerns over the Federal Reserve's tightening measures, the inflow increased due to improved investor sentiment influenced by falling international oil prices and generally favorable U.S. economic indicators."

However, foreign investment funds in bonds saw a net outflow of 1.31 billion USD (approximately 1.7526 trillion won), marking the first net outflow in 20 months. The Bank of Korea analyzed that the reduction in arbitrage incentives and an increase in maturing bonds led to the shift to net outflow in bond funds.

The total foreign securities investment funds, combining stocks and bonds, recorded a net inflow of 1.71 billion USD.

The credit default swap (CDS) premium for Korean government bonds (based on the 5-year Foreign Exchange Stabilization Fund bonds) averaged 37 basis points (1bp = 0.01 percentage points) last month. CDS is a type of financial derivative that acts as insurance compensating for losses when the issuing country or company defaults. Generally, the premium rises as the economic risk of the country increases.

Since last month, stock prices in advanced countries mostly declined. Germany experienced a downward trend due to concerns over economic slowdown caused by Russia's reduction in natural gas supply, and in Mexico, there were consecutive corporate delistings. On the other hand, Japan's stock prices rose as the second-quarter gross domestic product (GDP) growth rate was revised upward from 0.5% (preliminary) to 0.9%.

While the US dollar rose sharply amid expectations of the Fed's tightening, emerging market currencies showed varied trends by country. The Chinese yuan weakened further due to COVID-19 lockdown measures, and the T?rkiye lira declined due to policy rate cuts, while the South African rand fell due to outflows of foreign securities investment funds. Conversely, the Russian ruble strengthened due to a continued current account surplus.

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