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Foreign Funds Worth US$4 Billion Leave Korean Financial Market in November
Major Factors Include MSCI Index Rebalancing
Foreign Funds Worth US$4 Billion Leave Korean Financial Market in November
  • By Yoon Young-sil
  • December 11, 2019, 14:18
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Foreign capital outflow from the Korean stock and bond markets reached US$3.96 billion in November, hitting a 13-month high.

Foreign capital outflow from the Korean stock and bond markets hit a 13-month high in November.

The Bank of Korea said on Dec. 10 that US$3.96 billion of foreigners’ stock and bond funds left Korea last month. This was the largest amount in 13 months since US$4.27 billion flowed out of Korea in October of last year.

Net outflows of stock and bond funds stood at US$2.44 billion and US$1.52 billion, respectively. Particularly in the stock market, foreigners extended their “selling” streak to four consecutive months since August. In August and November, there was a rebalancing of the Morgan Stanley Capital International (MSCI) Index which institutional investors around the world use as a reference indicator. MSCI increased the weight of Chinese stocks while reducing that of Korean stocks in the Emerging Markets (EM) Index. Some experts noted that the trade war between the United States and China also contributed to the foreign investors’ continued net selling.

The Bank of Korea put the blame for the outflow of bond funds on profit taking by some investors on top of some bonds that reached their maturity. Earlier, foreigners net-purchased Korean bonds for nine consecutive months from November last year to July this year.

A large number of foreigners exited from the Korean financial market, but indicators of Korea's default risk have declined. The credit default swap (CDS) premium of five-year Korean government bonds (foreign exchange stabilization funds) fell 4 bps from the previous month to reach 28 bps (1bp = 0.01 percentage points). The volatility of the foreign exchange market in Korea has also decreased. The average volatility of the won-dollar exchange rate in November arrived at 3.6 won, down 0.3 won from October.