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Foreign Funds Boost Korean Bond, Stock Holdings in September

Foreign funds increased holdings of South Korean local-currency bonds by the most in six months in September, lured by credit-rating upgrades, according to data from the financial regulator.

The value of debt held by offshore investors rose by 1.5 trillion won ($1.3 billion) to 88.3 trillion won, the Financial Supervisory Service said in an e-mailed statement today. Global funds bought 3.1 trillion won more local equities than they sold last month, according to the statement, following record net buying of 6.6 trillion won in August.

Standard & Poor’s raised South Korea’s ranking to its fifth-highest investment grade of A+ on Sept. 14, following upgrades by Moody’s Investors Service and Fitch Ratings in the previous three weeks. The prospect of lower borrowing costs also attracted inflows, with eight of nine economists surveyed by Bloomberg forecasting the Bank of Korea will cut its benchmark rate to 2.75 percent from 3 percent on Oct. 11.

French funds were the biggest net investors in won-denominated debt, increasing their holdings by 643 billion won. Investors from the U.S. were the second-largest, adding 296 billion won, followed by those from Norway. Thai funds were the top sellers, followed by the U.K. and Malaysia, according to the financial watchdog.

Foreign ownership of local shares rose to 406 trillion won at the end of last month, according to the statement. That’s equivalent to 31.8 percent of shares listed on the Korean stock exchange. Funds based in the U.K. were the top buyers, with net purchases amounting to 1.2 trillion won, followed by France and the U.S., the statement showed. Investors from the Netherlands were the biggest sellers, ahead of those in Canada and Kuwait.

The yield on the government’s benchmark three-year bonds climbed three basis points, or 0.03 percentage point, in September to 2.79 percent, after declining in each of the previous five months, according to data compiled by Bloomberg. The Kospi index of stocks rallied 4.8 percent, the most since January. The won appreciated 2.1 percent to 1,111.38 per dollar, the biggest gain in four months, data compiled by Bloomberg show.

-- Editors: Andrew Janes, Amit Prakash

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