Foreigners Record Net Capital Outflow from Domestic Stock Market for 3 Consecutive Months

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] It has been revealed that foreigners have withdrawn funds from the domestic stock market for three consecutive months.

According to the 'International Finance and Foreign Exchange Market Trends since April' announced by the Bank of Korea on the 13th, foreign funds in the domestic stock market recorded a net outflow of $4.32 billion last month. Although the outflow amount decreased compared to March, it marks a net outflow trend for three consecutive months since February.

In March, securities funds recorded a net outflow of $11.04 billion, marking the largest net outflow since statistics began to be compiled in January 2007.

On the other hand, bond funds continued to flow in, mainly public funds, resulting in a net inflow of $5.82 billion in April. This marks a continuous net inflow trend for four consecutive months since January.

The total foreign investment in domestic securities turned to a net inflow of $1.5 billion due to the expansion of bond fund inflows.

The indicator reflecting the risk of national default improved compared to March. The credit default swap (CDS) premium for the 5-year Korean government bond (Foreign Exchange Stabilization Fund bond) was 35 basis points (1bp=0.01 percentage point) on average last month. This is lower than the March average (43bp) but higher than February (26bp), before COVID-19 spread worldwide.

CDS is a type of financial derivative product that acts like insurance, compensating for losses when the issuing country or company defaults. When risk increases, the premium tends to rise.

In the foreign exchange market, the won-dollar exchange rate was at a level similar to the end of March. The won-dollar exchange rate, which was 1,217.4 won at the end of March, slightly rose to 1,220.5 won as of the 11th of this month. The daily fluctuation range of the won-dollar exchange rate last month averaged 5.6 won, significantly lower than March's 13.8 won. The volatility rate also dropped from 1.12% to 0.46%.

The average daily foreign exchange transaction volume in the domestic interbank market last month was $24.24 billion, down $2.27 billion from the previous month. The main reason was a decrease in foreign exchange swap transactions.