Foreign investors recorded a net outflow of $30.72 billion from South Korean securities markets in June, according to data released by the Bank of Korea on July 14. Stock funds saw a record $32.37 billion net outflow, surpassing the previous month's record, while bond funds registered a $1.65 billion net inflow. The Bank of Korea attributed the expanded stock outflows to cautious investor sentiment regarding global AI investments and portfolio rebalancing following recent stock price gains.
Foreign Stock Funds Record $32.37 Billion Net Outflow in June
Foreign stock funds experienced a net outflow of $32.37 billion in June, exceeding the previous month's $31.83 billion and setting a new record high. This marked the sixth consecutive month of net outflows since January. The Bank of Korea stated that the expanded outflows resulted from weakened investment sentiment due to concerns over global AI investment and adjustments to domestic stock holdings following recent price increases.
Bond Funds Register $1.65 Billion Net Inflow Despite Reduced Scale
Bond funds recorded a net inflow of $1.65 billion in June. Despite government bond maturities, inflows continued due to expanded weighting in the World Government Bond Index (WGBI). However, the inflow scale significantly decreased compared to the previous month's $5.68 billion.
Dollar-Won Exchange Rate Volatility Expands in June
The dollar-won exchange rate rose during June due to foreign net selling of domestic stocks and Middle East uncertainties, then declined slightly in early July following weakened dollar strength from poor US employment indicators. The daily average volatility rate expanded to 0.50% from 0.45% in the previous month. The daily average fluctuation range also increased to 7.6 won from 6.6 won in the previous month.
The daily average foreign exchange trading volume in the interbank market reached $55.34 billion in June, a slight decrease from the previous month's record high of $56.33 billion. For the second quarter overall, the daily average foreign exchange trading volume totaled $53.4 billion, an increase of $7.92 billion compared to the previous quarter. The Bank of Korea explained that the increase primarily resulted from expanded dollar-won spot trading.
During the second quarter, dollar-won spot trading averaged $18.82 billion daily, an increase of $2.91 billion compared to the previous quarter. Forward contract trading also increased by $830 million to $2.4 billion. Foreign exchange swap trading reached $24.12 billion, up $2.75 billion from the previous quarter.
Domestic corporate forward contract trading showed $17.4 billion in net selling for the second quarter, compared to $8.6 billion in net selling in the previous quarter. Combined corporate purchase and sale trading volume totaled $71.5 billion, an increase of $12.1 billion from the previous quarter.
Non-resident non-deliverable forward (NDF) trading recorded $26.9 billion in net purchases, similar to the previous quarter's $27.03 billion. Daily average NDF trading volume expanded to $22.77 billion from $18.9 billion in the previous quarter.
The dollar-won swap rate (3-month) declined despite non-resident NDF net purchases, influenced by expanded foreign currency demand from institutional investors for overseas investment purposes. The 3-year currency swap rate rose 6bp from 3.30% at the end of May to 3.36% on July 10, linked to rising government bond yields. During the same period, the 3-year government bond yield increased 4bp from 3.73% to 3.77%.
South Korea's External Borrowing Conditions Improve in June
External foreign currency borrowing conditions improved in June compared to the previous month, following the signing of a memorandum of understanding (MOU) for a ceasefire between the US and Iran. Short-term external borrowing spreads remained at 25bp, similar to the previous month's 24bp, while medium- and long-term external borrowing spreads dropped significantly from 44bp to 37bp. CDS premiums declined from 25bp to 23bp, maintaining stable levels.
FAQ
What caused South Korea's record stock fund outflows in June?
The Bank of Korea attributed the record $32.37 billion stock fund outflows to cautious investor sentiment regarding global AI investments and portfolio rebalancing following recent stock price gains.
How did bond funds perform in June compared to stock funds?
Bond funds recorded a net inflow of $1.65 billion in June, continuing inflows due to expanded World Government Bond Index (WGBI) weighting, while stock funds experienced a record $32.37 billion net outflow.
What was the total securities investment flow in June?
Foreign securities investment recorded a combined net outflow of $30.72 billion in June, including both stock and bond markets, expanding from the previous month's $26.15 billion outflow.
