Foreign Investors Pull Out of Both Stocks and Bonds, Net Outflow of $36.5 Billion in a Month

[Financial News] Foreign investors withdrew more than $36.5 billion from the domestic stock market in just one month. Heavy profit-taking coincided with risk-off sentiment triggered by the Middle East conflict, accelerating the exodus from equities, while incentives for short-term arbitrage in the bond market diminished.
According to the “Trends in International Finance and the Foreign Exchange Market” released by the Bank of Korea (BOK) on the 9th, foreign investors’ net outflow of domestic securities investment funds in March came to $36.55 billion. This was roughly 4.7 times the size of the net outflow in February ($7.76 billion).
Both stocks and bonds saw net outflows. The amounts were $29.78 billion from equities and $6.77 billion from bonds. In particular, bond investment turned to a net outflow for the first time in five months, since October last year when the net outflow was $720 million.
An official at the Bank of Korea (BOK) explained, “As profit-taking sales continued and risk-averse sentiment grew due to geopolitical risks in the Middle East, the scale of net outflows from equities expanded,” adding, “Bond funds shifted to a net outflow due to factors such as the maturity redemption of Treasury Bonds and weak reinvestment demand stemming from reduced incentives for short-term arbitrage.”
The won–dollar exchange rate has remained elevated amid the prolonged Middle East conflict. It did fall back into the 1,400-won range after President Donald Trump announced a two-week ceasefire on the 8th, but before that it had stayed in the 1,500-won range for nine consecutive trading days.
As of the 7th, the won–yen exchange rate stood at 941.48 won and the won–yuan exchange rate at 218.65 won, up 1.9% and 4.0%, respectively, compared with the end of February.
Above all, exchange-rate volatility has increased. In March, the won–dollar exchange rate moved an average of 11.4 won per day. That was 4.8 won higher than in January (6.6 won) and 3.0 won higher than in February (8.4 won). The daily volatility rate also rose over the same period from 0.45% to 0.58% and then to 0.76%.
The three-month won–dollar swap rate, a key indicator of dollar liquidity, was minus 1.13% as of the 7th, up 11 basis points (1bp = 0.01 percentage point) from minus 1.24% at the end of February. This was attributed to a narrowing of the negative onshore–offshore interest rate differential and increased net purchases of non-deliverable forwards (NDFs) by non-residents. The three-year currency swap rate, which moves in line with Treasury Bond yields, rose 27 basis points over the same period to 2.97%.
In the first quarter, the average daily foreign exchange trading volume in the domestic interbank market was $45.43 billion, up $5.62 billion from the previous quarter’s $39.82 billion. Breaking it down, spot won–dollar trading increased by $2.85 billion. Forward trading rose by $340 million, and FX swaps grew by $2.07 billion.
Korean companies’ net forward transactions shifted from a net purchase of $500 million in the fourth quarter of last year to a net sale of $8.6 billion in the first quarter of this year. The total transaction volume also expanded to $59.4 billion, up $5.9 billion from the previous quarter.
The U.S. 10-year Treasury yield closed at 4.29% as of the 7th, up 35 basis points from the end of February. Concerns about inflation driven by higher oil prices reduced expectations for rate cuts, pushing market interest rates higher.
Japan’s 10-year government bond yield rose 30 basis points over the same period, supported by favorable outcomes from Japan’s annual spring wage offensive. Germany’s 10-year government bond yield also climbed 44 basis points as inflation data exceeded market expectations.
taeil0808@fnnews.com Kim Tae-il Reporter