Foreign Stock Fund Outflows Hit Record $32.37 Billion in June

Foreign investors' net outflow from South Korean stocks reached a record $32.37 billion in June, surpassing the previous record set in May. This marks the second consecutive month of unprecedented outflows, contributing significantly to the sustained high won-dollar exchange rate. The cumulative net outflow for the first half of the year now stands at $110.21 billion.

The Bank of Korea attributed the increased outflows to a contraction in investment sentiment globally, driven by concerns surrounding artificial intelligence investments, and portfolio rebalancing by foreign investors reflecting domestic stock market gains. Despite the significant withdrawals from the stock market, foreign capital showed a net inflow of $1.65 billion into bonds during June, a trend the central bank linked to South Korea's inclusion in the World Government Bond Index (WGBI) in April.

Combined, foreign net outflows from both stocks and bonds amounted to $30.72 billion in June. While this figure is higher than May's outflow of $26.15 billion, it remains below the record set in March. The overall net outflow for securities investment in the first half of the year reached $100.93 billion.

Meanwhile, the non-resident trading of offshore non-deliverable forwards (NDFs) saw a substantial increase, with net purchases of $18.6 billion in June, significantly higher than the $6.08 billion in May. This surge is interpreted as an attempt to profit from the weakening won. Despite these currency market fluctuations, the Bank of Korea stated that South Korea's external borrowing conditions remain favorable. Short-term foreign borrowing costs remained stable, and medium-to-long-term borrowing costs decreased in June.

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The increase in net outflows was due to a contraction in investment sentiment related to global artificial intelligence (AI) investments and portfolio rebalancing by domestic stock investors reflecting domestic stock price increases.