Fuelling the Korean bond rally amid heavy bets on a rate cut, foreign investors net purchased more than $6 billion worth in May, a record in more than 11 years as cheaper Korean won also added appeal to debt investment.
According to data released by the Bank of Korea on Thursday, foreigners invested $6.04 billion in Korean bonds in May, the highest since $6.15 billion in April, 2008. At the time, foreign investors took advantage of lowered tax rate on foreign bond purchases and arbitrage trading opportunities, before offloading them in the wake of the global financial crisis.
Foreigners net bought $1.31 billion worth of Korean bonds in March and $480 million in April before the amount soaring in last month. The total amount of bonds invested by foreigners reached almost half of last year’s total of $13.91 billion.
Market analysts noted that recent weakening of the Korean won against the U.S. dollar has allowed foreigners to buy won-denominated government bonds at lower price.
The won-dollar exchange rate was 1,168.2 won per U.S. dollar in the end of April, rising 22.7 won in the end of May to 1,190.9 won.
Foreign bond buying was also buoyed by growing hopes that the central bank will cut its interest rate as lower rates will bump up bond prices, allowing more gains. The yield curve has been flattening with the yields from short to long dates of as far as 50 years all hovering below the overnight policy rate of 1.75 percent.
In contrast to the bond market, offshore investors dumped $2.58 billion worth of Korean stocks in May, data showed, as they shunned Korean Inc. on fear of the damages from the intensifying trade war between the U.S. and China.
Overall, a total $3.46 billion net flowed into Korea’s securities market including that of bonds and stocks in May, continuing buying spree for a 7th consecutive month since November, last year.
By Lee Yu-sup and Lee Eun-joo
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]