The Bank of Korea reported that foreign investors are net selling Korean equities while modestly increasing holdings in government bonds [1].
This shift in investment behavior signals a growing risk of sustained capital outflows from South Korea. The trend reflects a broader movement toward safer assets as global risk aversion increases, potentially destabilizing the domestic financial landscape.
According to a financial stability report released June 24, 2024 [4], foreign investors recorded a net purchase of government bonds eligible for the World Government Bond Index (WGBI) totaling USD 17.57 billion between January 2024 and May 2024 [1]. However, this interest in government debt was offset by a net redemption of non-government bonds, such as monetary stabilization securities, amounting to USD 9.94 billion [2].
The equity market saw a more significant exit. The BOK reported a cumulative net sell of foreign equity funds totaling USD 79.95 billion as of the end of May 2024 [3].
Several macroeconomic factors drove this volatility. The BOK said the rising U.S. dollar and a weakening won have pressured investors to move capital. Additionally, heightened geopolitical tensions in the Middle East during March increased global risk aversion, prompting a shift from volatile Korean stocks to more secure assets [1].
The central bank's analysis suggests that while the bond market provides some cushion, the massive scale of equity outflows remains a primary concern for financial stability [1].
“Foreign investors are net selling Korean equities while modestly increasing holdings in government bonds.”
The divergence between bond inflows and equity outflows suggests that foreign investors still trust South Korea's sovereign credit but are wary of its corporate volatility. This 'flight to quality' within the domestic market indicates that geopolitical instability and currency devaluation are outweighing the growth potential of Korean companies, leaving the won vulnerable to further depreciation if equity exits accelerate.
