Korean Officials Are “Paying Close Attention” As Foreign Outflows Trigger Bond/Won Collapse

Unless you have been living under a rock, you’ll know that South Korea’s stock market has been rocketing higher on the back of the AI/Semi speculation as SK Hynix and Samsung have dominated (accounting for over 40% of the KOSPI market cap)…

But, as the following chart from Goldman Sachs shows, this surge in Korean stocks has been driven by domestic Retail investors as Foreign investors have fled that market en masse…

These outflows have sparked a collapse in the Korean Won (exacerbated by pressure some Asian currencies face as the Iran war drags on), now at its weakest versus the USDollar since 2009…

…and pushed yields for South Korean bonds to their highest in almost 3 years…

With all that in mind, Bloomberg reported earlier in the week that South Korean officials have intensified monitoring of the government bond market through daily phone calls and a private messaging group with market participants, as authorities step up efforts to contain rising yields.

Since May 18, a group of deputy directors in the finance ministry’s treasury-bond division have been calling bond dealers and asset managers before the start of trading to gauge market sentiment and investor positioning, Hwang Soon Kwan, deputy finance minister for treasury, said in an interview. In some cases, the discussions are held in person, he said.

“We are paying close attention to managing the bond market and are determined to respond firmly to any excessive moves,” Hwang said Friday in Seoul.

The ministry also set up a private KakaoTalk chat room on May 21 that now includes about 17 participants, according to Hwang.

Members include Finance Minister Koo Yun-cheol, senior ministry officials, researchers, primary dealers and fund managers, who share research reports and market views on a daily basis.

The moves are not intended to press yields down, but to signal authorities are closely monitoring the market, he added.

The government last week reduced planned bond issuance for June by about 21% from the previous month, adding to efforts to ease upward pressure on yields.

Additionally, just days later, Bloomberg reports that Finance Minister Koo Yun Cheol said authorities were closely monitoring FX market developments “with a high degree of vigilance to prevent anxiety from spreading,” and vowed to “take prompt, necessary measures in case of excessive market moves.”

Asian policymakers are coming up against the limit of their currency defense as elevated oil prices hurt the region’s importers.

Authorities in Indonesia and the Philippines also stepped up measures to defend currencies. 

“The authorities are doing what they can, but given that the won is being driven by external factors, it’s likely difficult to control,” said So Jaeyong, chief economist at Shinhan Bank in Seoul.