Foreign investors dumped $110 billion in six months... "AI investment sentiment weakened"

[Financial News] Foreign investors pulled large sums out of the market, driven by weakened investment sentiment toward Artificial Intelligence (AI) and profit-taking in domestic stocks that had risen rapidly in recent months. They sold more than $110 billion in the first half alone. Bonds, meanwhile, recorded net inflows for a third consecutive month, supported by inclusion in the World Government Bond Index (WGBI).
According to the Bank of Korea's report on "Trends in International Finance and the Foreign Exchange Market" released on the 14th, foreign investors posted a net outflow of $32.37 billion from domestic securities in June. That was $540 million, or 1.7%, more than the previous month’s $31.83 billion outflow.
Net outflows continued every month from January this year, reaching a cumulative $110.21 billion through June. That amounts to about 165 trillion won.
A Bank of Korea official explained that the selling reflected "weakened investment sentiment amid caution over global AI investments and portfolio rebalancing to adjust holdings of domestic stocks after their recent gains."
Bonds remained in net inflow territory. Starting with $550 million in April, net inflows reached $5.68 billion in May and $1.65 billion in June, bringing the three-month total to $7.88 billion. Despite maturing Korean Treasury Bonds, tracking funds tied to WGBI inclusion continued to flow in strongly.
The won–dollar exchange rate remains in the 1,500-won range, though it has edged lower. It had closed in the 1,500-won range for 36 consecutive trading days since June 15, but on the 8th it fell to 1,498.50 won, ending that streak. Since then, it has stayed below 1,510 won for three straight trading days.
A Bank of Korea official noted that the rate had risen due to net selling of domestic stocks by foreigners and uncertainty in the Middle East, but eased slightly in July as the U.S. dollar's gains narrowed after U.S. employment data came in below expectations.
As of the 10th, the won–yen exchange rate stood at 920.29 won and the won–yuan exchange rate at 221.37 won, down 1.9% and 0.6%, respectively, from the end of May.
However, exchange-rate volatility widened. The average daily range of the won–dollar exchange rate in June was 7.6 won. That was lower than in February (8.4 won), March (11.4 won), and April (8.9 won), but 1.0 won higher than in May (6.6 won). The volatility rate also rose from 0.45% to 0.50%.
The three-month won–dollar swap rate, a dollar liquidity indicator, stood at -0.99% on the 10th, down 7 basis points from the end of May (-0.92%). The decline came despite net purchases of non-deliverable forwards (NDFs) by nonresidents, as demand for foreign currency funding for institutional overseas investment increased. The three-year currency swap rate rose 6 basis points to 3.36% over the same period, tracking higher Korean Treasury Bond yields.
The average daily foreign-exchange trading volume in the domestic interbank market in the second quarter was $53.4 billion. That was up $7.92 billion from the previous quarter’s $45.48 billion. By segment, spot won–dollar trading rose by $3.9 billion to $23.41 billion. Forward trading increased by $830 million to $2.4 billion, while foreign-exchange swaps climbed by $2.75 billion to $24.12 billion.
Nonresidents recorded net NDF purchases of $26.9 billion in the second quarter, roughly in line with the previous quarter’s $27.03 billion. On a daily average basis, however, the figure expanded 20.5% to $22.77 billion from $18.9 billion in the first quarter.
The U.S. 10-year Treasury yield closed at 4.56% on the 10th, up 12 basis points from the end of May. The increase reflected the hawkish June Federal Open Market Committee (FOMC) outcome and a rise in corporate bond issuance for AI investments.
In Japan, the 10-year government bond yield rose 7 basis points over the same period as policy rates were raised. The U.K. 10-year yield climbed 6 basis points amid political uncertainty.

taeil0808@fnnews.com Kim Tae-il Reporter