Foreign investors have withdrawn funds from South Korea's stock and bond markets for nine consecutive months, with concerns over the profitability of artificial intelligence (AI) investments leading to an increase in stock outflows. However, bond investments turned positive due to inflows from funds tracking the World Government Bond Index (WGBI).
According to the Bank of Korea's report on international finance and foreign exchange market trends released on November 12, foreign securities investments in South Korea saw a net outflow of $13.7 billion last month.
Since February, foreign securities investments have recorded net outflows for nine months. However, the outflow amount decreased by $6.27 billion compared to September's figure of $19.97 billion.
By type of securities, stock investments experienced a net outflow of $19.31 billion, which is an increase of $5.15 billion from the previous month’s outflow of $14.16 billion.
The Bank of Korea explained that the outflow of foreign investments in domestic stocks has intensified due to concerns about the profitability of global AI investments. After briefly returning to net inflows in August, stock investments have resumed net outflows since September.
In contrast, bond investments recorded a net inflow of $5.61 billion. After three consecutive months of net outflows since July, this marks a return to net inflows after four months.
The Bank of Korea analyzed that the inflow of WGBI-tracking funds and the positive shift in short-term arbitrage incentives contributed to the influx of bond investments.
In fact, the short-term arbitrage incentive for three-month bonds improved from an average of -39 basis points in August and -31 basis points in September to +2 basis points in October.
The won-dollar exchange rate fell due to increased dollar sales by exporters. The exchange rate, which was 1,352.8 won at the end of September, decreased to 1,334.3 won by the end of October. However, the strengthening of the U.S. dollar and concerns over AI investment profitability limited the extent of the decline.
Exchange rate volatility also decreased. The average daily fluctuation of the won-dollar exchange rate in October was 4.6 won, down from 7.0 won in the previous month. The volatility rate also fell from 0.52% to 0.34%.
The credit default swap (CDS) premium for five-year foreign exchange stabilization fund bonds, which indicates the credit risk of Korean government bonds, averaged 24 basis points in October, up 2 basis points from the previous month’s average of 22 basis points.
* This article has been translated by AI.
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