Foreigners leaving Korean debt market in faster clip to cause more risk to KRW

Foreign investors are dumping Korean debt after stocks, causing more downward pressure on the Korean won and bigger risk to the local capital market as foreign net purchases in Korean debt had reached record high last year.

Offshore investors purchased $1.7 billion worth of Korean securities in August to record net inflow for the second straight month. The net inflow halved in a month as foreigners have withdrawn $13.1 billion worth from Korean debt upon maturity without reinvesting.

It is the first net outflow in the Korean bond market since December 2020, according to the Bank of Korea’s report on Wednesday.

Foreigners last year purchased record $73.75 billion worth Korean bonds both in public and private debt. The net buy surged 28 percent on year. Foreign purchase in bonds stopped at $14.75 billion in Korean bonds from January to March this year, down 36 percent on year.

Given their holdings from last year’s massive purchase, the impact from their exit from the Korean debt market can be that great if they decide to pull out of Korean securities to chase U.S. assets offering higher rates and worth in dollar.

The U.S. Federal Reserve is widely expected to place its base interest rate target at 4 percent by the end of this year, further up from its current 3.0-3.25 percent range. The Korean central bank with two rate-setting meetings left for this year is expected to raise its base rate from current 2.5 percent to 3 to 3.5 percent.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]