Foreign Securities Investment in August Sees Net Outflow for First Time in 7 Months... Impact of China's Economic Slowdown and Others

[Image source=Yonhap News]

Last month, foreign investment in domestic securities turned to a net outflow for the first time in seven months due to factors such as the slowdown in the Chinese economy.

According to the "International Finance and Foreign Exchange Market Trends since August 2023" released by the Bank of Korea on the 12th, foreign securities investment funds recorded a net outflow of 1.7 billion dollars last month.

This is the first net outflow of foreign securities investment funds in seven months since January (-340 million dollars). After recording a net inflow of 11.43 billion dollars in May, the amount has continued to decrease through June (2.92 billion dollars), July (1.04 billion dollars), and August.

Among securities investment funds, equity funds turned to a net outflow of 910 million dollars last month due to concerns over the slowdown in the Chinese economy.

Bond funds also recorded a net outflow of 790 million dollars. The Bank of Korea explained this as "due to the relatively large scale of maturities and the continued low incentives for arbitrage trading."

The average KRW-USD exchange rate rose sharply from 1,274.6 won in July to 1,321.8 won in August due to the strength of the US dollar and the slowdown in the Chinese economy. As of the 8th of this month, it stands at 1,333.4 won.

The volatility of the KRW-USD exchange rate was similar to the previous month. The daily fluctuation in the KRW-USD exchange rate during August was 5.5 won, slightly higher than July's 5.4 won, while the volatility rate was 0.41%, slightly lower than July's 0.42%.

The average daily foreign exchange transaction volume in the domestic interbank market during August was 28.63 billion dollars, down 3.17 billion dollars from the previous month (31.8 billion dollars) due to seasonal factors.

The Bank of Korea explained, "Foreign exchange transactions tend to be large at the beginning of the year and smaller in August, which is the summer vacation season, and at the end of the year."

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) in August, the same level as the previous month (31 bp).

CDS are financial derivatives that act as insurance to compensate for losses when the country or company issuing the bonds defaults. When the economic risk of the country increases, the premium tends to rise.

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