Monetary Harvest
The balance of won-denominated bonds owned by foreign investors decreased by approximately 400 billion won (US$336.8 million) from a month ago to 102.6 trillion won (US$86.3 billion) last month. The downtrend continued for the third consecutive month, although the decrement was reduced by close to 2.2 trillion won (US$1.9 billion) compared to July. Under the circumstances, the overall balance, which had reached 106 trillion won (US$89 billion) at the end of May, decreased 3.4 trillion won (US$2.9 billion) in the following three months.
Some bond experts say that this is because foreign investors are continuing to reduce their assets in the Korean capital market. “Investors are shunning emerging economies these days amid the Chinese financial shock and with an interest rate hike by the Fed around the corner,” said bond manager Park Hyuk-soo at the Daishin Economic Research Institute, adding, “It seems that Korea is no exception in this trend, and things are becoming worse and worse, as even emerging economies are recovering their investment in foreign bonds in order to get more U.S. dollars.”
However, the others are predicting that a sudden capital outflow similar to those recently seen in Thailand, Malaysia, and the like is rather unlikely. According to them, foreign investors are currently holding cash only temporarily, while waiting for reinvestment in view of global financial volatility as of late, and Korea is showing a lower ratio of short-term foreign debts along with foreign exchange reserves of as high as US$400 billion. “A drastic capital outflow is less likely, because Korea’s macroeconomic conditions are pretty favorable,” said Shin Hong-sup at Samsung Securities. Hana Financial Investment director Shin Dong-joon agreed by saying that Korean treasury bonds are still appealing, with the 10-year treasury bond yield expected to go down to 2.10 percent in the fourth quarter of this year.
Nevertheless, both agreed that future conditions hinge on fund flow from this month on. “We need to pay attention to whether foreign investors will reinvest the 4 trillion won [US$3.4 billion] reaching maturity this month,” the bond manager continued, adding, “Predictions will be possible from late this month.” Korea Investment & Securities Analyst Lee Jeong-beom mentioned that the Chinese economy and the Chinese government’s plan should be seen because its drastic downturn could lead to greater capital outflow pressure, with the Chinese government currently holding won-denominated bonds worth a total of 16.7 trillion won (US$14.1 billion).