Foreign net purchase of Korean securities hits 17-month high

2019.07.10 15:44:21

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South Korean equity and bond markets drew a net $4.78 billion from foreigners in June, the largest net inflow in 17 months on stock market recovery and still-robust bond appetite.

According to the Bank of Korea on Wednesday, foreigners net bought $4.78 billion of Korean stocks and bonds. The previous high was in January 2018 when it reached $5.22 billion.

Foreign investment in Korean securities, which topped $120 million in January, has been steadily climbing over the past five months.

Offshore investors bought $4.56 billion worth of bonds in June. While trimmed from the $6.04 billion in the previous month, foreign appetite for local bonds remained strong amid heightened expectations that Korea’s central bank would cut interest rates. Lower bond yields lead to higher prices, resulting in increased returns for investors.

Foreigners net purchased $220 million of stocks. Investors dumped $2.58 billion from the local stock market amid escalating trade tensions, but soon came back after signs of a détente in the trade war between the United States and China.

Currency markets have been volatile. The Korean won, which stood at 1,154.7 against the U.S. dollar in late June, fell to 1,182.0 as of July 8.

Daily currency volatility averaged 3.7 won last month, widening from 3.5 won in May. The volatility rate was up from 0.30 percent to 0.32 percent.

The monthly average credit default swap (CDS) premium of five-year foreign exchange stabilization bonds was 33 basis points in June, down 2 basis points from the previous month thanks to alleviation of trade concerns. CDS is a financial derivative designed to transfer the default risk of a company or country, with a lower CDS premium implying reduced default risk.

By Kim Yeon-joo and Kim Hyo-jin

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