Flow-out of Oil Money
The Financial Supervisory Service (FSS) announced on May 16 that Middle Eastern countries sold shares worth a total of 1.1527 trillion won (US$1.0 billion) in the South Korean stock market last month.
The United Arab Emirates recorded a net sale of 896.9 billion won (US$779.9 million) last month and 862 billion won (US$749.5 million) for the first four months of this year, which was led by the Abu Dhabi Investment Authority and the Investment Corporation of Dubai, the two largest sovereign wealth funds of the country. The UAE was followed by Qatar, which recorded a net sale of 175 billion won (US$152.1 million) last month.
Last year, Saudi Arabia sold South Korean stocks worth 4.724 trillion won (US$4.10 billion) in total. From January to April this year, it posted a net sale of 400 billion won (US$347.8 million), too. “Middle Eastern countries have recorded a disinvestment of 5.7 trillion won (US$4.95 billion) or so in the South Korean stock market since August last year in the wake of a rapid drop in oil prices,” the FSS explained, adding, “Oil producing countries in the Middle East procure financial resources for overseas investment by means of sovereign wealth funds in most cases, and thus their overseas investment tends to be vulnerable to deteriorating fiscal conditions of their governments.”
Recently, Moody’s lowered the long-term credit rating of Saudi Arabia from Aa3 to A1. Likewise, Fitch and S&P lowered its credit rating by one to two notches this year. Moody’s is currently negative about the future credit ratings of many oil producing countries in the Middle East as well with the lower oil prices likely to lead to lower economic growth rates and higher debt ratios.
In the meantime, foreign investors in general in the South Korean stock market recorded a net purchase of two trillion won last month. The net purchase continued for the second consecutive month although the amount halved compared to March. U.S., British and Luxembourgian investors posted 1.062 trillion won (US$923 million), 828 billion won (US$720 million) and 533 billion won (US$463 million) in net purchase, respectively.