"Foreigners' 'Short-Term Bond Arbitrage Demand' Leads to Net Inflow in Securities Market After 6 Months"
Foreign Investors Record Net Inflow of $1.73 Billion in February
Stock Market Sees Continued Net Outflow of $1.81 Billion
Semiconductor Investment Sentiment Weakens, U.S. Tariff Concerns Persist
Foreign capital flowed into the domestic securities market for the first time in six months. This was due to a significant increase in capital inflows in the bond market, mainly for short-term arbitrage trading.
According to the "International Finance and Foreign Exchange Market Trends after February 2025" released by the Bank of Korea on the 12th, foreign net inflows into the domestic stock and bond markets in February amounted to 1.73 billion USD. Despite continued net outflows in equity funds, a large net inflow in bond funds led to a reversal to net inflows for the first time in six months since August last year (3.63 billion USD).
Equity funds last month saw a net outflow of 1.81 billion USD. This was due to weakened investment sentiment in the semiconductor sector following the deep-sea shock, concerns over U.S. tariff impositions, and other factors. News last month about a 25% tariff imposed on Canada and Mexico, an additional 10 percentage point tariff on China, and announcements of reciprocal tariffs by country also had an impact. Bond funds turned to a net inflow of 3.54 billion USD due to expanded incentives for short-term arbitrage trading and continued demand for medium- to long-term bonds.
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The KRW-USD exchange rate rose to 1,463.4 KRW at the end of last month, up from 1,452.7 KRW at the end of January. However, the monthly rate of change in the KRW-USD exchange rate in February was 0.39%, down from 0.41% in the previous month. Recently, it has been fluctuating around 1,450 KRW. A Bank of Korea official said, "Despite the weakness of the dollar, the exchange rate has been fluctuating around 1,450 KRW due to risk-averse sentiment strengthened by uncertainties over the U.S. administration's tariff policies and concerns about a U.S. economic slowdown."
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