Outgoing Foreign Capital of $7.37 Billion... Largest Outflow Since the 2008 Financial Crisis

"Increase in Volatility of International Financial Markets Due to the Spread of COVID-19"

[Asia Economy Reporter Jang Sehee] The net outflow of foreign investment funds in South Korea reached its highest level since the 2008 global financial crisis. This appears to be influenced by the spread of the novel coronavirus disease (COVID-19) and increased volatility in international financial markets.

According to the "International Financial and Foreign Exchange Market Trends since March 2020" released by the Bank of Korea on the 10th, foreign investment in domestic securities recorded a net outflow of $7.37 billion in March. This is the largest amount since the global financial crisis ($7.55 billion). Except for January ($4.43 billion), there has been a net outflow for the past five months.

Equity funds saw a significant net outflow ($11.04 billion), mainly from private funds, due to concerns over a global economic recession caused by the COVID-19 pandemic. Bond funds recorded $3.66 billion due to expanded arbitrage incentives.

In the foreign exchange market, the won-dollar exchange rate rose (weakening of the won), showing overall increased volatility.

The won-dollar exchange rate surged sharply in March due to concerns over an economic recession caused by the COVID-19 pandemic and a sudden increase in demand for the US dollar, but the rise narrowed following the announcement of a currency swap agreement with the US Federal Reserve (Fed).

The credit default swap (CDS) premium, an indicator of domestic banks' external foreign currency borrowing conditions, rose sharply compared to the previous month.

Meanwhile, the average CDS premium for 5-year maturity Foreign Exchange Stabilization Bonds (Oepyeongchae) in March was 43 basis points (1bp = 0.01 percentage points), 17bp higher than the previous month.