The net selling of domestic stocks by foreign investors in June totaled $32.37 billion, the Bank of Korea said on the 14th. It was the largest since 2008, when the Bank of Korea began compiling and publishing related statistics. As the KOSPI rose sharply in a short period, foreigners sold Korean stocks to adjust their weightings in a rebalancing.
According to the "Trends in international finance and foreign exchange markets since June" released by the Bank of Korea that day, foreign securities investment funds posted net selling of $30.72 billion in June. Stocks saw net selling of $32.37 billion, while bonds recorded net buying of $1.65 billion. The Bank of Korea said, "Bond funds saw net inflows despite the maturity of Treasury bonds, helped by an expanded weighting in the World Government Bond Index (WGBI)."
When foreigners sell domestic stocks and convert them into dollars, the won-dollar exchange rate tends to rise against the U.S. dollar. In fact, the exchange rate rose to 1,549.5 won in June from 1,507.9 won a month earlier. During the same period, volatility also widened by 1 won to 7.6 won. However, it fell to 1,501.4 won on the 10th.
The Bank of Korea predicted that the net selling could narrow in the second half of the year. That is because the KOSPI received a correction, falling 8.95% from the previous trading day the day before. If the index falls, the share of Korean stocks declines, which could lead foreigners to turn to net buying. A Bank of Korea official said, "If the domestic stock market undergoes a correction, the performance gap with overseas stocks narrows," adding, "In that case, the outflow trend will not ease."
Foreigners' non-deliverable forward (NDF) transactions posted net buying of $18.6 billion in June, tripling from May's $6.08 billion. On a quarterly basis, however, the second quarter was $26.9 billion, similar to the previous quarter's $27.03 billion. NDFs settle in dollars the difference arising from exchange rate changes before and after the contract without exchanging actual won.