Korea likely to maintain stability amid debt sell-offs

Global bond fund managers are betting Korea will be immune from an emerging-market sell-off, as a predominance of long-term holders and the country’s $363 billion foreign-exchange reserves offer stability.

Overseas investors purchased a net $1.2 billion of Korean debt last week, as they withdrew $154 million from Thailand and $1 billion from Indonesian notes. Russia’s central bank boosted its benchmark interest rate to 17 percent on Dec. 16 to stem a slide in the ruble, while authorities in Indonesia and India intervened to prop up currencies amid concern over plunging oil prices and the outlook for U.S. interest-rate increases.

“Korean bonds will likely be more resilient than most during the emerging-market turmoil,” said Edmund Goh, a Malaysia-based assistant investment manager for Aberdeen Asset Management Plc, which oversees $526 billion. “It might actually rally if there’s significant risk-off pressure on broader emerging markets.”

Any correction will be an opportunity to add, said Goh.

Korea’s foreign-exchange reserves jumped 18-fold since the end of 1997, when Asia’s fourth-biggest economy was caught up in a regional financial crisis, official figures show. Overseas central banks accounted for about half of the foreign funds holding the nation’s local debt, Finance Ministry Director General Lee Won-sik said in a September interview.

The won has appreciated 0.9 percent against the greenback this month, the sole gain among 31 major currencies. The yield for benchmark 10-year government debt rose six basis points to 2.64 percent.

Bloomberg