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Foreigners’ exit accelerates capital outflow in S. Korea
Publication Date : 23-08-2013
Worries over a massive capital outflow are escalating in South Korea's financial market as indices show that a number of overseas investors pulled out from fund products this week.
The trend reflects global concern about a possible financial crisis in emerging countries such as India and Indonesia, which may have negative impact on Korean industries.
According to the Korea Financial Investment Association on Thursday, the local market posted a net capital outflow from the “funds investing in Korean stocks” for the fifth consecutive trading session since last Friday. The figure totalled 45.4 billion won (US$39.4 million).
A net outflow, worth 24.7 billion won, from “funds investing in overseas stocks” was also seen for the ninth consecutive session.
In addition, money-market funds were scaled back as 271.8 billion won in investments was withdrawn.
Market insiders highlight that US investors, who have actively advanced to Korea and other Asian markets since the 2008 global financial crisis, embarked on a full-fledged move to retrieve their investment in Korean equities and bonds.
The US investors’ ownership of Korean stocks and bonds snowballed to 104.7 trillion won in July 2013, compared to 68 trillion won at the end of 2008.
However, the North American investors accounted for about 70 per cent of the recent capital outflow, according to data of the Financial Supervisory Service.
Amid US policymakers’ move to roll back its quantitative easing - a measure pushed from 2008-2012 to boost the economy - market insiders shared the view that the US investors were poised to relocate their funds to their local market after enjoying gains, or capitalising their investment, in Korea.
Some critics argue that emerging markets are not attractive to US and European investors at the current stage. They say that “investors have preference in US equities and bonds that guarantee higher gains because the country is leaning toward higher interest rate policy.”
Further, the minutes for the July meeting of the US Federal Open Market Committee, which were publicized Thursday (Korean time), confirmed the rumors that the country would reduce its quantitative easing starting later this year.
The Korea Composite Stock Price index dropped for the fifth consecutive trading session to close at 1,849.12 on Thursday, down 18.34 points from a day earlier.
Foreigners net-sold Korean stocks worth 102.2 billion won on the main bourse.
The Korean currency lost ground against the US dollar to close at 1,123 won, down 5.6 won per greenback.
Nevertheless, some research analysts as well as state financial regulators such as the FSS and the Financial Services Commission downplayed the likelihood that the woes in some emerging Asian countries would deal a blow to Korea.
“India and Indonesia take up only 2.1 per cent of Korea’s export destinations as of the first half,” said Shinhan Investment Corp. analyst Han Bum-ho.
“Considering the asset soundness held by Korea, the flow of foreign investment funds will eventually show a positive trend.”