Foreign capital outflows from the South Korean securities market surpassed US$4 billion (4.53 trillion won) in September amid escalated geopolitical tensions after North Korean carried out the sixth nuclear test in the month, hitting hit a six-year high.
According to a report titled “International Financial, Foreign Exchange Market Trend in September 2017” from the Bank of Korea (BOK) on October 18, foreign investors sold a total of US$4.3 billion (4.87 trillion won) worth of Korean stocks and bonds – US$830 million (940.16 billion won) of stocks and US$3.47 billion (3.93 trillion won) of bonds – in September. In calculating at the average exchange rate in September of 1,132.9 won to the U.S. dollar, it was about 4.87 trillion won. Offshore investors net sold Korean securities worth US$3.25 billion (3.68 trillion won) in August, keeping their selling spree for two straight months.
This was largely due to a higher level of geopolitical risks on the Korean peninsula amid escalated tensions between North Korea and the U.S. after North Korea carried out the nuclear test last month. South Korea’s credit default swap (CDS) premiums recorded at 70 basis points on average in September, up 7 basis points from a month earlier. The higher bankruptcy risks there are, the higher CDS premiums a country get. Profit-taking by foreign investors also fanned the capital outflow as the Korea Composite Stock Price Index (KOSPI) jumped.
A spokesperson at the BOK said, “Foreign capital showed a net outflow owing to profit-taking and the North Korea risks.”