Increasing Bond Investment
It has been found that the balance of foreign investment in the South Korean bond market totaled 91.4014 trillion won on February 13, showing an increase of 2.39 trillion won in two months. The balance of their investment in won-denominated bonds increased for the second consecutive month after having declined for five months in a row from August to December last year due to a decrease in Franklin Templeton funds’ investment in monetary stabilization bonds.
These days, the foreign investors are concentrating more on mid- and long-term government bonds with higher absolute interest rates than on monetary stabilization bonds. “The selling of won-denominated bonds by Franklin Templeton last year added to a sense of crisis by causing the balance of foreign investment to dip below 90 trillion won,” Eugene Investment & Securities explained, adding, “However, the market is stabilizing nowadays and this stabilization is being led by Franklin Templeton, a major investor in the South Korean bond market.” According to Eugene Investment & Securities, Luxembourg-domiciled Franklin Templeton funds increased their investment in won-denominated bonds by 1.35% last month in spite of a 2.5% fall in the amount of trust.
Late last year, the South Korean bond market was in a panic as the balance of foreign investment in the market dropped by 12 trillion won in just one year to 89.3 trillion won. During the same period, Franklin Templeton reduced its balance by no less than 11.8 trillion won. Such an exodus spread fast and caused the central banks of multiple emerging countries to change their strategy for investment in won-denominated bonds. The central bank of Thailand recorded a net sale of about one trillion won in October last year and those of Malaysia and so on followed suit.
Things have changed since the election of Donald Trump as the President of the United States. Disappointment with his fiscal policy has led to a weak dollar, appreciation of emerging currencies and investment inflow into the South Korean bond market. In addition, Franklin Templeton’s influence in the market is much less now than before. Specifically, Franklin Templeton funds’ won-denominated government bonds and monetary stabilization bonds worth 371.7 billion won and 767.6 billion won mature this year and the total, 1.14 trillion won, is merely 5% or so of the total principal and interest redemption related to foreign investors. In addition, no monetary stabilization bond currently held by Franklin Templeton matures in March to July this year.