Foreigners have built up a strong appetite for short-dated South Korean sovereign debt, a sign some market experts see as still-strong foreign confidence in Korean capital markets with others expressing doubt on the long-term outlook of the Korean economy.

According to Korea Financial Investment Association on Tuesday, foreigners net bought 3.29 trillion won ($2.94 billion) of monetary stabilization bonds (MSBs) last month even as they net sold 577 billion won worth of government bonds.

MSBs are issued by the Korean central bank to help provide liquidity in support of the monetary policy. They are short- to mid-term bond vehicles with maturities ranging from 14 days to two years.

As of late October, foreigners’ net balance in Korean debt, including matured bonds, amounted to 111.8 trillion won.

About 26 trillion won of government debt matured in September and 15 trillion won of MSBs in October, but the foreign balance was pared by just 200 billion won, said Kong Dong-rak, an analyst at Daeshin Securities.

“Korean debt may be still appealing to foreigners because of the country’s financial integrity and from the aspect of currency forward (based on the belief of appreciation in the Korean won from the current level),” he added.

Where these short-term funds will wind up heading - back into Korean debt or to the stock market, or out of the country - remains uncertain.

Some of the funds could be lured into the stock market, which lost 4.5 trillion won last month due to a massive foreign selloff. In the main Kospi market alone, foreigners pulled out nearly 4 trillion won, more than half of last year’s net purchasing of 6.58 trillion won.

“Foreigners exited the Korean stock market en masse in October but have not converted their money,” said Moon Hong-cheol, an analyst at DB Financial Investment. “Some have placed money in shorter-dated MSBs and could jump right back in upon developments in the market.”

Others were less optimistic as they see investors in debt and equities as different.

The fact that bond investors have taken to shorter sovereign papers is a reflection of their insecurity about Korea’s long-term prospects, said Ryu In-wook, manager of the bond market team at Korea Exchange.

By Kim Je-lim and Kim Hyo-jin

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