Nearly 2.5 trillion won ($1.9 billion) in capital have been pulled out of the South Korean stock market after the collapse of Silicon Valley Bank in the U.S.

According to Korea Exchange on Thursday, stock market funds, including investor deposits, reached 131.9 trillion won as of Monday, down 1.84 percent from 134.4 trillion won on March 10 when SVB collapsed.

Investor deposits, in particular, shrank 2.07 trillion won to 46.3 trillion won from 48.3 trillion won during the cited period.

Foreign investors that were on a buying spree earlier on in the year also withdrew funds from the Korean stock market. They net sold about 1.3 trillion won in Kospi and Kosdaq shares after the SVB bankruptcy.

The capital outflow comes as fears for crisis spread in the financial sector after failures of midsize banks.

The California Department of Financial Protection and Innovation closed SVB for inadequate liquidity and insolvency and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver of SVB on March 10.

Concerns rise over smaller banks in the U.S., with the closure of Signature Bank and crisis facing First Republic. The recent takeover of Credit Suisse by UBS for liquidity assistance also aggravated the fears.

“Concerns over the banking system in the U.S. triggered by the liquidation of crypto-focused bank Silvergate Capital Corp. are spreading over to U.S. midsize banks and Europe,” said Kim Seong-hwan, an analyst at Shinhan Securities Co.

The benchmark Kospi fell 1.63 percent in March, steeper than the 0.31 percent decline in the U.S. Dow Jones Industrial Average. The secondary Kosdaq rose 1.95 percent, which falls short of the 4.22 percent gain in the Nasdaq index.

The U.S. Federal Reserve, in the meantime, continued on with an interest rate hike. The Federal Open Market Committee (FOMC) on Wednesday raised the base rate by 25 basis points to the 4.75~5.00 percent.

“The Fed’s decision indicates its higher priority on combating high inflation despite growing risks involving the banking system,” said Kong Dong-rak, an analyst at Daishin Securities Co. “But the interest rate hike seems to have neared its end as the Fed’s projection for the year’s interest rates remains unchanged.”

The Fed’s committee members suggested a 5.1 percent average rate by the year end.

By Pulse

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