Korea’s money supply sees fastest growth in decade as foreigners return to stock market

South Korea’s money supply grew at a quicker pace in June than it has in a decade, as foreign investors, who shunned risky assets just following the COVID-19 outbreak, returned to the local stock market on expectations of improved corporate earnings.

The country’s M2, a measure of money supply, gained 9.9% year-on-year to a record 3,077 trillion won at the end of June, according to Bank of Korea data on Thursday. That’s the fastest yearly growth since the 10.5% gain in October 2009.

From the previous month, money supply grew by 23.2 trillion won or 0.8%, slowing from an increase of 35.3 trillion won in May.

M2 measures how much money is being circulated in the market. It includes cash, demand deposits, savings deposits, bank debentures and other short-term money that can be easily converted into cash.

The rise in money supply in June was fueled by funds held by households and non-profit businesses, which recorded a combined increase of 16.9 trillion won. In contrast, corporate loans posted a gain of 9.1 trillion won.

Ample liquidity has prompted investors to jump back into the property market, causing concerns for government officials, who in recent weeks unveiled a series of measures to curb speculative investment in the real-estate sector.



FOREIGNERS BUYING INTO STOCKS

Central bank data also showed foreign investors turned net buyers of Korean stocks last month, ending a five-month selling spree.

On the local bourses, foreigners bought a net $1.39 billion worth of shares in July, marking the first time in six months to net buy into stocks on the KOSPI and KOSDAQ markets. In June, they offloaded a net $440 million worth of local stocks.

Helped by the turnaround, foreigners’ purchase of Korean securities, including bonds, increased to a net $4.39 billion in July from $2.48 billion in June, and compared with net selling worth $1.17 billion in May.

On the bond market, foreign investors expanded their purchases, buying a net $3.01 billion in debentures, following $2.92 billion in June and $2.1 billion in May.

Foreigners began to dump local shares in February, shortly after the country reported its first confirmed case of COVID-19 on Jan. 20. Their sell-offs accelerated with increased volatility in the foreign-exchange market after the global spread of the novel coronavirus was declared a pandemic.

Foreigners’ renewed interest in local stocks came in July as major Korean companies began posting robust second-quarter results, raising hopes for a faster-than-expected economic recovery.

Last week, the country’s two major airliners, Korean Air Lines Co. and Asiana Airlines Inc., surprised the market by posting rare quarterly profits by focusing on cargo flights, defying the coronavirus travel slump.

Foreigners also snapped up bio shares such as Samsung Biologics and Celltrion as they bet on Korean companies’ technical superiority in the development of COVID-19 vaccines and treatments.