Forecast of a large-scale outflow of foreign capital

If financial instability caused by the U.S. government’s cutting down of quantitative easing spreads across the globe, foreigners are expected to sell bonds worth 34 trillion won (39 billion U.S. dollars) and leave the Korean market. Fearing such a capital outflow’s dealing a big blow to cash flow of Korean businesses, the financial authorities decided to preemptively carry out restructuring of large companies having potential for financial trouble.

According to the Korea Institute of Finance and the financial authorities on Sunday, foreigners have bonds worth 98.8 trillion won (114 billion dollars) as of the end of May, and, among them, bonds worth 34 trillion won (39 billion U.S. dollars) are likely to be sold.

The finance institute said, “Since late 2008 when the first monetary easing was implemented by the U.S., foreign investors have purchased bonds worth 61.3 trillion won (71.7 billion dollars), and 56 trillion won (48.48 billion dollars), 92 percent of the bonds, has strong aversion to risks. Except long-term investment worth 22 trillion won (25.3 billion dollars), which is owned by foreign central banks or Sovereign Wealth Fund, the remaining 34 trillion won (39 billion dollars)-worth bonds are likely to be sold sooner or later.

The government held an emergency macro-economic and financial meeting and said, “There is no need to overreact.” But the financial authorities began strengthening inspection of certain large companies vulnerable to capital flow.

The Financial Supervisory Service will reportedly select companies to be liquidated among the six vulnerable businesses of construction, shipbuilding, marine transport, steel, cement and petrochemical businesses.