Foreign investors’ domestic equity funds saw a net outflow of $19.31 billion last month, as concerns over how to monetize global AI investment dampened investor sentiment. Bond funds, by contrast, turned to a net inflow for the first time in four months.
The Bank of Korea on the 12th released “International Financial and Foreign Exchange Market Trends Since October 2026.” Foreign portfolio investment in Korean securities in October recorded a net outflow of $13.7 billion.
Equity outflows continued for a second month. The previous month’s net outflow was $14.16 billion. The outflow widened by $5.15 billion in a month.
Bond funds saw a net inflow of $5.61 billion, ending a three-month streak of outflows from July to September. WGBI-tracking funds came in and the arbitrage incentive turned positive, which was a major factor.
For January through October cumulatively, a net $160.75 billion flowed out. Equities saw $164.34 billion leave, while bonds took in $3.59 billion.
Risk aversion also persisted in international financial markets. In the United States, the burden of financing AI investment continued. Concerns also grew that data center regulation could tighten after the midterm elections.
Democratic gubernatorial candidates who campaigned on restricting data center construction won in key states such as Texas and Ohio. Worries spread that investment could be delayed. On the 5th, the Nasdaq fell 5.5%. The Philadelphia Semiconductor Index dropped 12.2%.
The U.S. dollar was strong, against a backdrop of fears of tighter AI regulation and solid employment data. The dollar index (DXY, the dollar’s value against six major currencies) stood at 102.2 on the 10th, up 0.8% from the end of September (101.5).
The won-dollar exchange rate actually fell, thanks to increased dollar selling by exporters. The rate went from 1,352.8 won at the end of September to 1,334.3 won at the end of October. However, dollar strength and AI profitability concerns were analyzed to have limited the size of the decline.
Foreign exchange market volatility eased. In October, the daily average change in the exchange rate (versus the previous day) was 4.6 won, smaller than 7.0 won in September. The daily average rate of change fell from 0.52% to 0.34%.
Conditions for domestic banks borrowing foreign currency overseas were generally favorable. The short-term external borrowing spread in October fell to 18 bp from 27 bp in September. For the medium to long term, it rose from 40 bp to 58 bp.
The credit default swap (CDS) premium on Foreign Exchange Stabilization Fund bonds, an indicator of external creditworthiness, edged up from 22 bp to 24 bp.