The Largest Monthly Outflow Since 2007
The Bank of Korea announced on April 10 that foreign investors posted a net outflow of US$11.04 billion in the South Korean stock market last month, the largest since records began in January 2007.
On the other hand, they posted a net inflow of US$3.66 billion in the bond market with the 10-year government bond yield rising from 1.33 percent to 1.51 percent from the end of February to April 8. They anticipated profits in the process of dollar-to-won conversion although a higher bond yield results in a lower bond price and fewer reasons to invest.
Foreign investors make investments based on swap contracts in order to avoid foreign exchange fluctuation risks. The three-month won-dollar swap rate was negative 0.82 percent as of April 8. A negative swap rate means that they can switch from the won to the U.S. dollar in three months at an exchange rate lower than the current rate, which is advantageous for foreign investors.
Foreign investors’ stock and bond investments in South Korea showed a net outflow of US$7.37 billion in March this year, the largest since October 2008. At that time, the net outflow amounted to US$7.55 billion during a global financial crisis.
Last month, the credit default swap premium of the five-year government bond rose 17 basis points to 43 basis points. For reference, the annual average was 31 basis points in 2019 and 44 basis points in 2018.