Back
23 May 2013
Flash: Korea’s external position has continued to improve - DBS Group
FXstreet.com (Barcelona) - DBS Group analysts note that Korea´s external position has continued to improve.
They see that gross external assets increased USD 8.6bn in 1Q and reached an all-time high of USD 544.5bn and the steady foreign currency inflows stemming from current account surpluses have strengthened the capabilities for banks and corporates to invest abroad and for the central bank to accumulate foreign reserves.
Further, they see that gross external debt decreased USD 3.3bn in 1Q to USDS 410.3bn while long-term debt climbed by USD 1.2bn, reflecting foreign investors’ strong interest in KRW sovereign bonds. However, they add that short-term debt maturing within one year fell sharply by USD 4.6bn, reaching the lowest level seen since 4Q06. Further, speculative capital inflows based on interest rate arbitrage have remained insignificant. The rate gaps between KRW and the funding currencies such as USD and JPY are limited, and market expectations about KRW appreciation in the near termare subdued. Meanwhile, they note that the authorities have also tightened regulations on banks’ foreign currency borrowings and FX derivatives positions in several steps after the 2008 global financial crisis.
Elsewhere, the external debt coverage ratio has risen to 1.33X in 1Q from 1.30X in 4Q12, a substantial improvement compared to the 2008 low of 1.08X. The ratio between foreign reserves and short-term external debt rose more apparently to 2.68X from 2.58X, far better than 1.26X during the 2008 crisis. They write, “These imply that the country has strong ability of withstanding potential risks of capital outflows and foreign liquidity tightening. The fundamental support to the KRW exchange ratesremains intact.”
They see that gross external assets increased USD 8.6bn in 1Q and reached an all-time high of USD 544.5bn and the steady foreign currency inflows stemming from current account surpluses have strengthened the capabilities for banks and corporates to invest abroad and for the central bank to accumulate foreign reserves.
Further, they see that gross external debt decreased USD 3.3bn in 1Q to USDS 410.3bn while long-term debt climbed by USD 1.2bn, reflecting foreign investors’ strong interest in KRW sovereign bonds. However, they add that short-term debt maturing within one year fell sharply by USD 4.6bn, reaching the lowest level seen since 4Q06. Further, speculative capital inflows based on interest rate arbitrage have remained insignificant. The rate gaps between KRW and the funding currencies such as USD and JPY are limited, and market expectations about KRW appreciation in the near termare subdued. Meanwhile, they note that the authorities have also tightened regulations on banks’ foreign currency borrowings and FX derivatives positions in several steps after the 2008 global financial crisis.
Elsewhere, the external debt coverage ratio has risen to 1.33X in 1Q from 1.30X in 4Q12, a substantial improvement compared to the 2008 low of 1.08X. The ratio between foreign reserves and short-term external debt rose more apparently to 2.68X from 2.58X, far better than 1.26X during the 2008 crisis. They write, “These imply that the country has strong ability of withstanding potential risks of capital outflows and foreign liquidity tightening. The fundamental support to the KRW exchange ratesremains intact.”