Foreign Investors Turn to Net Inflow in Stocks... Expectations for Semiconductor and Secondary Battery Industry Improvement

by Park Eugenie

Published 10 Aug.2023 12:10(KST)

Decrease in Bond Inflow Scale

Last month, foreigners made a net investment of approximately 560.8 billion KRW in domestic stocks, resulting in a net inflow of foreign stock investment funds after one month.

According to the "International Finance and Foreign Exchange Market Trends" released by the Bank of Korea on the 10th, foreign stock investment funds saw a net inflow of 440 million USD in July. In the previous month, there was a net outflow (-310 million USD) due to profit-taking sales mainly in sectors such as secondary batteries. A Bank of Korea official explained, "The net inflow this month was driven by improved outlooks for the semiconductor and secondary battery industries."

Last month, foreign investment in domestic bonds recorded a net inflow of 600 million USD. Although this marks the fifth consecutive month of net inflows, it decreased by more than 80% compared to the previous month (3.23 billion USD). A Bank of Korea official stated, "The favorable foreign currency funding conditions in the swap market have significantly reduced arbitrage incentives."

The combined securities investment funds, including bonds and stocks, showed a net inflow of 1.04 billion USD. Based on the KRW-USD exchange rate at the end of July (1,274.6 KRW), this amounts to approximately 1.3256 trillion KRW. This means that more funds flowed into the Korean securities market than out.

The credit default swap (CDS) premium for Korean government bonds (based on the 5-year Foreign Exchange Stabilization Fund bonds) averaged 31 basis points (1 bp = 0.01 percentage points) last month. This is 4 points lower than June's 35 basis points.

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CDS are a type of financial derivative that acts like insurance, compensating for losses if the issuing country or company defaults. Generally, if the economic risk of the country increases, the premium also rises.