Foreign money pullout ‘unlikely’

A day ahead of the U.S. Fed’s interest rate announcement, Korea’s top financial regulators have forecast that the outflow of foreign money will not be large, although the local financial market is getting more volatile.

The Financial Services Commission and the Financial Supervisory Service on Thursday held an emergency market watch meeting, inviting the Korea Exchange and Korea Center for International Finance.

“American capital, which accounts for nearly 40 percent of the total foreign money in local securities market, has recently kept a net-buying trend, so it is unlikely that an abrupt capital pull-out will follow the rate hike,” Kim Yong-beom, the standing commissioner of securities and futures commission at the FSC, said at the meeting.

“We think the Korean market has enough capability to respond to external risks like this, thanks to local financiers’ asset soundness and capital adequacy.”

The foreigners’ pace of pull-out in the local securities market won’t be as large as other emerging markets, regulators said, explaining that the size of recent pull-outs has actually been smaller than the few months before past monetary policy normalization cases.

Foreigners net sold Korean stocks worth a monthly average 1.7 trillion won ($1.44 billion) this year, compared to the monthly net sell-off of 2.4 trillion won from March through June 2013, during which the U.S. Fed kept signaling a tapering. The Fed actually began tapering in December 2013.

Much of recent foreign sell-offs were carried out by oil-producing countries, such as Saudi Arabia, Kim added, due to plunging crude prices.

However, regulators acknowledged that foreigners may expand pulling out if oil prices remain slow and the Chinese economy doesn’t rebound.

To minimize the negative impact of a foreign money outflow, regulators said they will expedite the launching of the individual saving account, which largely involves investment on foreign funds, and attract more players to join an institutional investment pool.

Internally, regulators vowed they will keep working on tightening household debt, while also finishing credit ratings assessments on indebted companies.

BY KIM JI-YOON [kim.jiyoon@joongang.co.kr]