Foreign Investors Hit 5-Year High Selling Korean Stocks in April: 9-Month Trend Continues

# Foreign Investors Exit South Korean Equities with $9.3 Billion Sell-off Amid Trade Tensions In April, foreign investors unloaded over $9.3 billion in South Korean equities, marking the largest net outflow in over five years, as reported by the Bank of Korea. This extended a nine-month selling streak, driven by reduced investor sentiment following the U.S. administration's reciprocal tariffs under President Donald Trump's trade policies. According to the Bank of Korea's "International Financial and Foreign Exchange Markets Trends Since April" report, released on the 16th, there was a net outflow of $1.7 billion from South Korean financial markets in April, including equities and bonds. This reversed the trend of net inflows seen over the previous three months, since January's $1.88 billion net outflow. # Divergences in Equity and Bond Trading Foreign investors exhibited contrasting behaviors in South Korean financial markets. They sold $9.33 billion in equities, the highest outflow since March 2020, when net equity sales peaked at $11.04 billion. This significant sell-off came as global investor sentiment plunged following the U.S. announcement of reciprocal tariffs in early April. Conversely, the bond market saw positive activity. Foreign investors brought in a net $7.63 billion in April, marking the third month in a row of net bond inflows. This was driven by increased arbitrage trading opportunities and steady demand for mid- to long-term bonds. The three-month arbitrage incentive expanded from 36 basis points (bps) in March to 46 bps in April. # Korean Won Faces Volatility Amid Trade Conflicts The South Korean won experienced significant volatility in April amidst escalating trade tensions between the U.S. and China. The won-dollar exchange rate surged to a yearly high of KRW 1,484.1 as investors became risk-averse, but it dropped later in the month due to optimism over potential progress in U.S.-China trade negotiations after tariff deferrals by the United States. Other currency pairs, such as the won-yen and won-yuan, also weakened during this period. Daily volatility in the won-dollar exchange rate increased, with average changes reaching 0.67% in April, significantly higher than March's 0.29% and February's 0.39%. The won-dollar trading range almost doubled, from 5.6 won in February to 9.7 won in April, reflecting increased uncertainty over U.S.-China trade tariffs. # Stability in External Borrowing Conditions Despite the market turbulence, South Korea’s external borrowing conditions remained relatively stable in April. The risk premium for short-term external borrowing rose by 6 bps to 21 bps, still below the long-term average of 26 bps. Meanwhile, medium- to long-term borrowing risk premiums fell by 26 bps to 46 bps, indicating improved borrowing conditions. The Credit Default Swap (CDS) premium, which measures credit risk, climbed by 4 bps to 37 bps, staying close to the long-term average. As global uncertainties continue, South Korea faces mixed signals in its financial markets, with foreign investors pulling out of equities but maintaining strong interest in the bond market. The Korean won, a key indicator for investor sentiment, remains a crucial gauge for assessing global economic and trade developments.