Foreign investors’ holding of South Korean bonds at record high of $115 bn

Foreign investors continued to buy South Korean bonds such as treasuries and monetary stabilization bonds for a fourth consecutive month in April, with their holdings reaching a record high of 140.5 trillion won ($115 billion), regulatory data showed.

Foreigners have scooped up a net 17 trillion won of listed bonds in South Korea in the first four months of this year, far more than their net purchases of 9.9 trillion won for entire 2019, according to the Financial Supervisory Service on May 11.

The four-month net buying is in stark contrast to their selling steak in other emerging markets, including India, Thailand and Mexico, during the same period. In Seoul stock markets, foreign investors remained net sellers for a third straight month in April on growing concerns about the economic impact of coronavirus.

Higher yields and fiscal strength, compared to other countries with the same sovereign ratings, and additional gains on currency hedges have been behind foreign buying in South Korean bonds.

Foreign interest is expected to remain robust for the time being, despite a new batch of a large-scale supplementary budget and deficit-covering bond issues, said Meritz Securities analyst Yeosam Yoon.

“South Korea’s national debt is just 46% of this year’s GDP. Even including government guaranteed bonds, the ratio is 70%,” he told the Korean Investors.

“The current account surplus is expected to remain at around 3% of GDP, so it seems that South Korean bonds have secured the safe haven status.”

S&P maintained the AA long-term credit rating on South Korea last month, on a par with the UK, France and Belgium.

The government debt accounted for 98% of GDP in France, 87% in the UK and 102% in Belgium in 2018, even before the coronavirus broke out, according to the International Monetary Fund.

The yield on South Korea’s 10-year treasuries is 1.43%, higher than 0.69% in the US and minus 0.53% in Germany with the same maturity. In other parts of Asia, the same-maturity treasuries in Thailand and Singapore yield 1.14% and 0.90%, respectively.

For South Korea’s three-year treasuries that yield 0.91%, the gain of about 0.9% from the dollar/won currency hedges will push their expected yield to 1.8%.

In April alone, foreign investors bought a net 7.4 trillion won of bonds listed on the Korea Stock Exchange, after redemption at maturity. It compares to their net selling of domestic stocks of 5.4 trillion won in the same month.

For bonds with a remaining maturity of less than one year, their net buying of 5.2 trillion won in April marked the biggest single-month purchase, since they bought a net 3.2 trillion won of bonds with the same remaining maturity in April 2008.

Foreign investors’ holdings accounted for 7.3% of outstanding bonds traded on the domestic bourse as of the end of April, compared with their ownership of 31.5% of domestic listed stocks.

Treasuries and monetary stabilization bonds (MSBs) make up the bulk of the listed bonds in the country.

Foreign investors were net buyers of both treasuries and MSBs in April of all remaining maturities from less than one year to over five years.

Write to Geunho Im at eigen@hankyung.com


(Photo: Getty Images Bank)