Foreign investors continued to offload South Korean equities for an eighth consecutive month in February, as global risk appetite weakened ahead of U.S. President Donald Trump’s anticipated tariff measures, data from the Bank of Korea (BOK) showed on April 22.
Foreign equity investment saw a net outflow of $1.16 billion in February, marking the eighth straight month of withdrawals. The streak began in August 2024, when $1.85 billion was pulled from the market.
The central bank attributed the ongoing sell-off to mounting global trade uncertainty. However, optimism around the semiconductor sector helped moderate outflows from January’s pace.
In contrast, foreign investment in South Korean bonds remained strong, with a net inflow of $4.83 billion in February—marking a second consecutive month of net gains. The BOK cited solid demand for long-term bonds and growing interest in arbitrage opportunities as key drivers.
Arbitrage incentives—profits gained when foreign investors borrow in dollars, convert to won, and invest in Korean bonds—widened from 15 basis points in January to 31 basis points in February and 36 basis points in March.
Overall, combined foreign investment in Korean stocks and bonds recorded a net inflow of $3.67 billion in February, the largest since May 2024, when the net inflow reached $4.11 billion.
The won also saw greater volatility in March, with average daily fluctuations against the U.S. dollar widening to 11.7 won and the daily rate change rising to 0.81%, up from 4.3 won and 0.29% in February. The BOK said the increased volatility was largely driven by uncertainty over U.S. trade policy developments.
Meanwhile, South Korea’s credit default swap (CDS) premium for five-year sovereign bonds—a key gauge of default risk—averaged 33 basis points in March, up 2 basis points from the previous month. The premium had dropped sharply in February after peaking at 37 basis points in January but rebounded slightly last month. A lower CDS premium generally reflects stronger credit stability.
