Foreign holdings of South Korean bonds amounted to 119.2 trillion won ($111 billion) at the end of last month, reaching a new monthly high, according to data from the Financial Supervisory Service, while the local stock market remained stagnant.

The figure surpassed the previous monthly record high of 114.3 trillion won in August 2018. 

Overseas investors’ debt holdings accounted for 6.7 percent of the total market, according to the FSS data.

They net purchased 11.3 trillion won worth of local debt in May alone while offloading a net 1.5 trillion won. Of this amount, 2.7 trillion won worth of bonds were redeemed at maturity, so the actual volume of investment stood at a net 7.7 trillion won.

Of the total holdings, offshore investors in Asia held the most with 4.9 trillion won, amounting to 41.7 percent of the entire volume. European investors held 41.2 trillion won, and US investors possessed 11.2 trillion won, amounting to 34.5 percent and 9.8 percent, respectively.

Meanwhile, foreign investors sold a net 2.9 trillion won of local stocks in the same period, in contrast to their move to net purchase shares worth 2.5 trillion won a month earlier, data showed.

They held a total of 532.4 trillion won worth of local stocks at the end of May.

Increased appetite for won-denominated bonds stems from lingering concerns over the US-China trade war, coupled with anticipation building around the US Federal Reserve’s announcement of a possible rate cut, according to analysts.

“The local bond market is likely to reflect the South Korean government’s concerns over a possible economic slowdown, a weak US job market index, and expectations surrounding a Fed rate cut -- and continue a limited bull market,” said Koo Hye-young, an analyst at Mirae Asset Daewoo.

By Jung Min-kyung (mkjung@heraldcorp.com)