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S. Korea posts record capital account surplus
SEOUL, Nov. 29 (Yonhap) -- South Korea has posted a sharp capital account surplus so far this year as foreigners have expanded investment in the local stock and debt markets, encouraged by stabilized financial sentiment, the central bank said Sunday.
But a recent debt moratorium request by a Dubai government investment fund is raising fears that such massive net capital inflows into the nation's financial market could leave it more vulnerable to outside shocks and a massive withdrawal of foreign money.
According to the data provided by the Bank of Korea (BOK), the capital account surplus totaled US$24.9 billion in the January-October period, a sharp turnaround from a deficit of $33.9 billion during the same period a year ago.
The amount is the largest ever posted during the 10-month period since the central bank started to announce related data in 1980.
The increase is attributed mostly to eased investor jitters, which encouraged foreigners to pick up Korean shares and bonds after being spooked by the financial turmoil caused by the collapse of Lehman Brothers last year.
Foreign investment in the local bourse came to a surplus of $22.7 billion until October compared with a deficit of $39.9 billion during the same period last year, the BOK said. Net capital flows into the local debt markets also grew by more than two-fold over the same period.
The turnaround in the capital account reflects improved market sentiment, but some experts worry that it could leave the nation's financial markets more vulnerable to outside fluctuations.
Jitters have intensified Dubai World called for a six-month moratorium on repayment of its debts last week, sending shockwaves through global financial markets. South Korea's stock markets also plunged and the local currency lost ground against the U.S. dollar.
"The capital account turned positive thanks to massive purchasing of Korean shares and bonds by foreign investors ... If they pull out their money in droves, it could cause a market panic," a BOK official said.
The government was quick to assuage such concerns, saying that the impact from the Dubai debt problem would be marginal, but added it is watching local financial markets closely for signs of a possible fallout from the shock from the Middle East.
kokobj@yna.co.kr
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