Foreigners turn as net buyers in S. Korean stock market, FX volatility eases

Foreigner investors returned to net buyers of Korean stocks in July after five months of selloff and cash-out from the country and the volatility of the Korean won versus the U.S. dollar eased amid expectations for moderation in U.S. monetary tightening pace.

Foreigners’ stock investment in Korea recorded a net inflow of $160 million in July, showed a Bank of Korea report on Thursday. It is a sharp reversal from a net outflow of $3.01 billion in June. The country had recorded net outflow every month since February.

Foreigner investors sought bargains in emerging markets on expectations that the U.S. Federal Reserve would moderate its pace after rapid increases amid deterioration of performance by U.S. enterprises, the bank surmised.

Foreign investors purchased a net $3.54 billion worth of Korean bonds last month, extending the net inflow streak to 19th month.

Foreign securities investment, combining stock and bond, came to net inflow of $3.7 billion on revived foreign stock purchases, compared with a net outflow of $780 million in June.

The Korean government bonds’ credit default swap (CDS) premium, based on 5-yer foreign exchange stabilization bond, averaged at 50 basis points in July, up 2 basis points from previous month and the highest since February 2018. CDS is a type of insurance against default risk by a company or country. Its premium tends to rise when the economic risk of a country grows.

The country’s CDS premium had hovered around 50 basis points in early July then fell to 40 basis points later the month. It stood at 39 basis points on Aug. 9, said the Bank of Korea.

Volatility in Korean currency eased in July. The daily fluctuation of the dollar-won exchange rate averaged at 5.2 won last month, eased from 6.8 won a month earlier.

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