Slow Economic Recovery, Rapid Secession

It is speculated that funds can be rapidly moved to developed countries from slow recovering “emerging markets” in the second half of this year.

Furthermore, it is summed that $13.52 billion of foreign capital was invested in the Korean stock market last year, the largest since 1992’s initiation of the capital market.

In the “2003 Characteristics of International Finance Market and Outlook of This Year,” Bank of Korea (BOK) pointed out, “If the central banks of the developed countries such as the U.S. increase their interest rates during the second half, there is a possibility of rapid capital outflow in weak economic recovering and low international credence rate emerging markets.”

BOK’s speculation suggests a rapid secession of foreign investment in Korea if it does not recover from its present economic status.

Eun Ho-sung, the vice-chief of BOK international department, said, “If the rate of economic recovery increases, the U.S., especially, will quickly increase its interest rate and thus the inflow of capital into U.S. will expand.”

On the other hand, according to “2003 Tendency of Foreign Stock Investment Capital’s In and Outflow” reported by BOK, a total of $81.42 billion came in and $67.9 billion went out. Thus, 2002’s $830 million outflow surplus turned to $13.52 billion inflow surplus in one year. This statistic is much higher than 2000’s $11.31 billion when stock prices were strong after the IMF bailout.

The total amount of foreign stock investment market price was $129.9 billion at the end of 2003. This is a 56.5 percent ($46.92 billion) increase from the end of 2002. The head of BOK foreign exchange analyzing team, Lee Soon-ho, explained, “The reason for the increase in the total amount of foreign stock investment market price compared to the net inflow amount is because superior stocks preferring foreign investors received many benefits such as an increase in the composite stock price index.”

The international amount of remittance of the share of foreign investment of stocks has greatly increased from $640 million in 2002 to $1.34 billion last year. Samsung Electronics had the largest foreign share with $730 million, followed by Korea Electric Power Cooperation with $410 million and then Kookmin Bank with $260 million.

Joong-Hyun Park sanjuck@donga.com