Foreign investors are logging their longest streak of net selling in South Korea’s stock market since the 2008 global financial crisis, even as they continue a historic run of net buying in the country’s bond market. Amid mounting concerns that U.S. Treasury bonds are losing their status as the ultimate safe-haven asset due to escalating tariff disputes, South Korean bonds are increasingly being viewed as an alternative refuge by global investors.
While worries over a “Sell Korea” trend are deepening in the equity market, the bond market is witnessing an unprecedented “Buy Korea” wave. According to the Bank of Korea and Meritz Securities on Apr. 25, foreign holdings of South Korean government bonds reached a record 276.2 trillion won ($192 billion) as of Apr. 18.
At the onset of the global financial crisis in early 2008, foreign holdings of South Korean bonds stood at roughly 50 trillion won. The figure surpassed 100 trillion won in 2013 and crossed the 200 trillion won threshold in 2020, with growth accelerating sharply in recent months. Foreign investors have now been net buyers of domestic bonds for 27 consecutive months. Their holdings have also risen to account for more than 10 percent of the total outstanding amount of South Korean bonds, including both government and corporate debt. In government bonds alone, foreign investors now hold nearly 22 percent.
The stock market tells a starkly different story. Data from the Bank of Korea show that foreign investors posted a net outflow of $1.16 billion from South Korean equities last month, marking eight straight months of net selling since August. The scale is considerable, with cumulative net outflows reaching $20.6 billion (approximately 29.3 trillion won) over the eight-month period. As of Apr. 25, nearly 10 trillion won worth of stocks had already been sold, putting the market on track for a ninth consecutive month of net outflows. This marks the most sustained “Sell Korea” trend since the 11-month stretch of continuous outflows from June 2007 to April 2008 during the global financial crisis.
Strong foreign demand for South Korean bonds has driven government bond yields lower, with declines outpacing those of major economies. The yield on 10-year government bonds, which closed last year at 2.855 percent, ended at 2.576 percent on Apr. 25. As bond prices move inversely to yields, the decline signals a significant rise in bond prices.
Although South Korean bond yields briefly climbed amid volatility in U.S. Treasury yields fueled by former President Donald Trump’s shifting tariff policies, they have since resumed a steady downward trend. Compared to major economies such as Germany, the United Kingdom, Canada, Japan, China, and Australia, the fall in South Korean bond yields has been the steepest, highlighting robust demand for Korean debt.
The stark contrast between the frigid stock market and the buoyant bond market stems largely from foreign investors’ perception of risk. For global asset managers and index-tracking exchange-traded funds (ETFs), South Korea’s stock market continues to be classified as a “risky emerging market.” In the Morgan Stanley Capital International (MSCI) country classification, South Korea remains listed as an emerging market, despite years of efforts to achieve an upgrade. Ongoing issues such as a ban on short-selling and insufficient English disclosures have impeded its entry into the developed markets index. As the tariff dispute sparked a broader flight from risk assets, South Korean equities, grouped under emerging markets, also faced heavy outflows.
The bond market, however, reflects a different narrative. South Korea’s sovereign credit rating is now higher than Japan’s across all three major international credit rating agencies, bolstering its credentials as a safe investment destination. Yoon Yeo-sam, an analyst at Meritz Securities, said, “During the tariff shock, foreigners sold off risk assets like stocks denominated in won, but bought up safe assets like bonds,” adding, “Given South Korea’s strong fundamentals, won-denominated bonds have been recognized as a safe haven.”
