Foreign investors return to S. Korean mkt on eased geopolitical risks

2017.11.08 16:27:44 | 2017.11.08 16:28:20

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Thanks to eased geopolitical risks on the Korean peninsula, foreign investors’ demand for South Korean securities has revived last month after their two-month-long selling spree, government data showed on Wednesday.

According to data released by the Bank of Korea (BOK), foreign investors net purchased Korean securities worth $3.48 billion - $2.84 billion stocks and $650 million bonds - in October.

Offshore investors’ return to the Korean stock market has come after they had gone on a selling spree of Korean securities for two straight months in August and September when their net capital outflow reached $3.25 billion and $4.30 billion, respectively, due to the escalated geopolitical risks from North Korean nuclear and missile threats.

The volume of monthly inflow in October was the largest since May when foreign investors purchased $5.27 billion worth of Korean securities. Foreign capitals have returned to pick up Korean securities on expectations for solid corporate earnings and eased tensions with North Korea, according to the BOK.

The renewed foreign buying gave traction to the Kospi in its bullish run towards new historic highs. The Kospi gained 5.4 percent on Oct. 31 from a month ago.

But borrowing conditions for the country have deteriorated, according to the central bank’s data. The spread on the credit default swap (CDS) for the five-year South Korean foreign exchange stabilization bonds averaged 71 basis points in October, up 1 basis point from a month earlier. A higher spread in the insurance against default makes it more expensive for the Korean government and companies to issue bonds.

The spread also is the highest since 71 basis points in February 2016 when the geopolitical tensions on the Korean peninsula peaked following the abrupt shutdown of the North Korea-South Korea joint industrial park in Kaesong, North Korea.

The high CDS spread suggested that North Korean issues remain a risk for offshore investors, said the BOK.

By Sohn Il-seon and Cho Jeehyun

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