Breakaway of foreign capital due to reality of Korean-American interest rate change…USD 2 gone within two months
Cho Eun Ae | eunae@ | 2018-05-10 10:21:09

Foreign capital inflows into South Korea have come to the fore as a result of the reversal of interest rates between Korea and the United States. More than USD 2 billion, within April, was spilled out of the stock market, and bond funds have slowed down and foreigners have turned negative in a month. It is now mentioned that preemptive monetary policy is urgent in Korea, because US interest rate hike and sovereign bond interest rate increase and dollar funds are suddenly departing from emerging countries.

According to a report by the International Finance and Foreign Exchange Market in April the Bank of Korea, on May 9, stated, foreign investors` funds, including the stock market was leaked out of the USD 1.4 billion market. In fact, in April, stocks fell by USD 2.04 billion due to the rise in US Treasury yields and the widening of the share price of Samsung Electronics shares. USD 3.63 billion was leaked in February and USD 170 million was flown in March, but it turned back to foreign capital in just one month.

Inflows continued to be driven mainly by public funds due to expectations of normalization of inter-Korean relations, but the growth rate decreased as for the bond fund. Bond inflows were USD 640 million in April. However, the rate of growth slows down in February (USD 2.35 billion) and March (USD 960 million).

Despite the Fed raised the benchmark interest rate to 1.50-1.75% in March, the Bank of Korea and the financial authorities are unlikely to outflow the foreign exchange rate Reaction. However, the financial authorities are also nervous as the departure of foreign capital has become reality from the first month of the rate reversal. Especially, concerns are mounting that the Fed is likely to raise additional interest rates in June, which is likely to further exacerbate foreign capital, especially dollar funds.

Besides, the 10-year government bond yield, which is the US benchmark, is approaching 3%, putting pressure on the Bank of Korea. The US 10-year Treasury rate temporarily surpassed 3% (3.03%) on April 25, the highest level since January 2014.

Meanwhile, US dollar-denominated losses due to interest rate hikes in the United States are taking center stage in emerging countries. Argentina raised its benchmark interest rate to 40% a year, which was 27.5% for the past 10 days. However, it is not enough to prevent the dollar from spilling. Argentina has applied for bailouts to the International Monetary Fund. Specialists predict that the domestic market will not be as large as other emerging economies. Economic indicators such as the current account surplus are good, and expectations for economic cooperation are growing due to improved inter-Korean relations. However, the weak won is continuing to expand and there is no reason to be relieved.

Im Hye-yoon, a securities researcher at the Securities and Exchange Institute, stated, "The KRW is relatively stable due to the improvement of inter-Korean relations Despite the weakening of the currency due to the strengthening of the dollar and weakening of the currency due to the expansion of capital outflows. It can see the downward pressure on the economy. "The Bank of Korea, which had been hesitant to raise interest rates due to an increase in investment funds due to an increase in interest rates from the US, is also centering on the interest rate hike. Especially, the possibility of a rate hike in July is on the rise, as a stronger hawkish figure is being hired by a new member of the Monetary Policy Committee as long as the benchmark interest rate is decided.

By Cho Eun Ae eunae@

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