Foreign investors dump stocks and buy bonds

A stock trader works at the New York Stock Exchange on Friday, March 2020. [AP]

Foreign investors have been selling stocks and buying bonds in the Korean financial market, according to a report issued by the Financial Supervisory Service (FSS) Monday.

Foreigners sold 42 billion won ($34.9 million) worth of stocks in June, continuing a five-month selling spree even after the number of confirmed Covid-19 cases started to drop in Korea.

American investors sold the most, offloading around 2.5 trillion won worth of shares. Investors from Ireland followed, selling more than 500 billion won in stocks. The third-largest sellers were Australians, who sold off stocks worth 400 billion won.

The value of local stocks held by foreign investors increased by 21 trillion won from May to 541.6 trillion won. Foreign investors own 30.9 percent of Korea stocks by market capitalization.

American investors held the most, with 226.9 trillion won, or 41.9 percent of total shares held by foreign investors.

Bonds have been popular with international investors. Foreigners bought around a 10.8 trillion-won worth of local bonds last month, continuing a massive purchasing rally that has lasted for six consecutive months.

The bond holdings by foreign investors hit a record high of 146.6 trillion won, or 7.4 percent of the total in June according to the data. Of that, 78.8 percent of the holdings, or 115.5 trillion won, was in government bonds.

Most of that was in short-term bonds, with maturities from one to five years. Of the total, 4.1 trillion won was invested in bonds with maturities of less than five years, while around 500 billion won was invested in long-term bonds with maturities of more than five years.

“After the Kospi surpassed the 2000-point mark, foreign investors may feel that there isn't any additional momentum in the local stock market and are reducing purchases of stocks and focusing more on bonds,” said Hwang Sei-woon, a research fellow at the Korea Capital Market Institute.

“While Korea’s base rate is low, it is still higher than in other countries. The other factor is the Korean government's financial stability.”

BY KANG JAE-EUN [kang.jaeeun@joongang.co.kr]