Foreign Investors Exit South Korean Stocks and Bonds

Foreign investors withdrew a combined $27.47 billion from South Korean stocks and bonds in July, according to data released by the Bank of Korea on August 13. This represents a significant decline from the record high of $32.37 billion in net outflows seen in June. The decline in foreign investment funds in Korean stocks and bonds has been ongoing, with stock investment funds experiencing net outflows for seven consecutive months since January.

The Bank of Korea attributed the decrease in net outflows for stock funds to the easing of rebalancing selling pressure following domestic stock price adjustments. They noted that geopolitical tensions in the Middle East and caution over global AI investments had initially driven the net outflows, but these factors have since diminished. However, the scale of the outflow remained higher than the previous month's figures.

Foreign bond funds, which had seen a net outflow of $6.77 billion in March, experienced a change in trend in July. These funds had been witnessing net inflows for three consecutive months starting from April, following the inclusion of Korean government bonds in the World Government Bond Index (WGBI). However, the widening inversion gap of short-term arbitrage incentives in the Korean market led to a shift towards net outflows by July.