SEOUL, October 8 (AJP) — South Korea posted its second-largest monthly current account surplus in August, even as bond flows swung sharply outward, with residents buying foreign debt at a record pace and foreign investors cutting Korean bond holdings.
The current account recorded a $46.11 billion surplus, widening from $42.08 billion in July and staying above $40 billion for a third straight month, according to The Bank of Korea (BOK). August's surplus was second only to the record $49.73 billion set in June.
The cumulative surplus for the first eight months reached $279.20 billion, about four times the $69.67 billion recorded during the same period last year.
Korean residents increased their holdings of foreign debt securities by a record $6.44 billion in August, more than five times July's $1.24 billion increase, while foreign investors reduced their holdings of Korean debt securities by $4.38 billion after adding $2.19 billion a month earlier.
Combining the two sides, bond flows shifted to a net outward $10.82 billion in August from a net inward $950 million in July, marking a sharp reversal even as Korea continued to generate one of the largest current account surpluses in its history.
The goods surplus widened to $46.81 billion from $40.43 billion in July, also the second-largest on record, as exports rose to $104.80 billion — staying above $100 billion for a third straight month — while imports fell to $57.99 billion.
The export boom remained heavily concentrated in technology products. On a customs basis, semiconductor shipments surged 206.1 percent from a year earlier in August and exports of computer peripherals including solid-state drives jumped 366.8 percent, while overall IT exports rose 162.6 percent and non-IT shipments increased 8.1 percent.
Imports also reflected continued investment in the semiconductor cycle, with capital-goods purchases rising 42.9 percent from a year earlier, including a 96.5 percent increase in semiconductor manufacturing equipment and a 70.6 percent rise in semiconductor imports.
The services deficit narrowed to $1.68 billion from $1.97 billion in July as higher export freight rates lifted the transport surplus to $520 million from $60 million, more than offsetting a widening travel deficit that more than doubled to $770 million during the summer travel season.
The primary-income surplus fell to $1.92 billion from $4.35 billion, largely because quarterly dividend payments reduced the dividend-income surplus to $1.18 billion, with such payments typically concentrated in February, May, August and November, according to the BOK.
The sharper change came in the financial account, where Korean residents increased overseas portfolio assets by $16.60 billion in August, up from $13.57 billion in July and the second-largest monthly increase on record.
Overseas equity investment remained high at $10.15 billion but eased from $12.33 billion, leaving the surge in foreign bond purchases as the main source of the monthly acceleration. The BOK attributed the record August increase in overseas debt-security investment to improved investment appeal in foreign bond markets at the time.
Foreign portfolio investment in Korea simultaneously swung into reverse, falling by $4.85 billion after increasing by $8.17 billion in July.
The BOK cited weaker arbitrage incentives as foreign investment in Korean debt securities declined, while foreign stock investment also turned negative after the temporary boost from SK hynix's American depositary receipt issuance faded.
Despite the August reversal, foreign investment in Korean debt securities remained up $15.34 billion for the first eight months of the year, showing that the monthly outflow had yet to erase earlier inflows.
As a result, net portfolio assets increased by $21.44 billion in August, nearly four times the $5.40 billion increase recorded in July.
Comparable September balance-of-payments data have yet to be released, making it too early to determine whether August's shift in bond flows will persist.
AJP Takeaways
- Korea posted a $46.11 billion current account surplus in August, the second-largest on record and the third straight monthly surplus above $40 billion.
- Bond flows swung from a net $950 million inward in July to a net $10.82 billion outward in August as residents' foreign bond purchases hit a record.
- Residents' overseas portfolio investment rose to $16.60 billion, the second-largest monthly increase on record, while foreign portfolio investment in Korea turned negative.
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