In the previous month, foreign investors sold about $600 million in Korea's stock and bond markets. It was due to profit-taking in some sectors such as semiconductors, where share prices had risen sharply.
According to the Bank of Korea's report, "Trends in international finance and foreign exchange markets since August," released on the 12th, foreign investment funds recorded a net outflow of $600 million from the domestic securities (stocks + bonds) market in the previous month. It turned to net selling for the first time in four months since April (-$1.7 billion).
In the stock market, foreign investment funds posted a net inflow of $180 million. They continued a net inflow for four straight months since May (+$1.45 billion), but the size of the net inflow shrank sharply compared with the previous month (+$4.83 billion).
Bond funds saw a net outflow of $770 million. Bond funds had continued a net inflow for six consecutive months from February of this year (+$3.54 billion) through July, but turned to a net outflow starting in the previous month.
The Bank of Korea said, "Net inflows into stocks slowed sharply due to profit-taking sales in some sectors such as semiconductors," adding, "Bond funds turned to a net outflow due to factors such as maturities being repaid and reduced arbitrage incentives."
Arbitrage incentives refer to the profit foreign investors can earn when they borrow dollars, convert them into won, and invest in domestic bonds. Arbitrage incentives narrowed from 54 basis points (1 bp = 0.01 percentage point) in June to 26 bp in July and 14 bp in August.
The won-dollar exchange rate was little changed, from 1,387.0 won at the end of July to 1,386.6 won on the 10th of this month. The exchange rate's daily trading range in the previous month was 5.8 won, with a volatility of 0.42%. During the same period, the value of the won per 100 yen rose 0.8%, from 932.4 won to 940.35 won, and the won-yuan rose 1.0%, from 192.54 won to 194.55 won.
External foreign currency borrowing conditions were generally stable. Last month, the short-term external borrowing spread rose 4 basis points from the previous month to 12 bp. The CDS premium fell 3 bp from the previous month to 21 bp, remaining at a low level. The CDS premium has been on a downtrend for four straight months since May (-6 bp).