Foreign share of Korean gov`t bond holdings hit record 16 pct.

Foreign holdings of Korean government bonds hit a record high last month as offshore investors bought en masse.

Asian countries including China and Malaysia have also beefed up Korean treasuries, filling the gap that otherwise would have been filled by European countries had it not been for the fiscal debt crisis. Analysts say the sharp increase in foreign holdings of Korean bonds poses both opportunity and risk to the Korean economy.

According the Financial Supervisory Service and the Korea Financial Investment Association Wednesday, the amount of listed government bonds owned by foreign investors reached 63.06 trillion won (55.9 billion U.S. dollars) last month, or 16 percent of all government bonds worth 394.82 trillion won (350.6 billion dollars).

The figure is the highest since the Korean bond market was opened to foreign investors in 1998. Foreign holdings of government bonds have risen since the global financial crisis of 2008. Ownership reached 13.3 percent last year, up from 8.4 percent in 2009 and 7 percent in 2008.

Foreign investors` purchases of government bonds also took up a large part of overall financial foreign ownership, including monetary stabilization securities, special bonds and corporate bonds, representing 72.8 percent in November this year, up from 64.4 percent last year. The share had declined to 48.8 percent in 2009 from 53.6 percent in 2008 and 68.6 percent in 2007.

By country, the U.S. led the pack with holdings of Korean bonds worth 18.85 trillion won (16.74 billion dollars), followed by Luxembourg with 14.15 trillion won (12.56 billion dollars), Thailand 10.94 trillion won (9.71 billion dollars), China 10.2 trillion won (9.05 billion dollars), Malaysia 7.88 trillion won (6.99 billion dollars), the U.K. 3.45 trillion won (3.06 billion dollars), and Singapore 3.29 trillion won (2.93 billion dollars).

Chinese investment has steeply risen over the past few years, with its holdings increasing to 6.57 trillion won (5.84 billion dollars) last year from 1.87 trillion won (1.6 billion dollars) in 2009 and 79.6 billion won (70.7 million dollars) in 2008.

Malaysian investors owned 4.28 trillion won (3.8 billion dollars) worth of Korean treasuries last year, up from 2.05 trillion won (1.82 billion dollars) in 2009 and 34 billion won (30.2 million dollars) in 2008.

Analysts say the sharp increase in foreign bond holdings reflects heightened confidence in the Korean economy thanks to its stable growth and solid economic fundamentals.

yunjung@donga.com