Foreigners' investment in South Korean government bonds is likely to continue as
they see Korean assets as "safe and liquid" following a recent sovereign rating
upgrade, HSBC Holdings Plc. said Tuesday.
Recently, global credit
appraisers Moody's Investors Service and Fitch Ratings raised their sovereign
ratings on South Korea, citing the nation's economic and fiscal
sustainability.
Steven Major, the head of fixed-income research at
British banking group HSBC, said at a press conference in Seoul that the
rationales for the rating upgrade have to do with Korea's "fiscal
sustainability, transparency plus the sustainability of the economic
positions."
"The most important and distinguishable feature is
sovereignty because Korea has its own currency and own interest rate and fiscal
policy (unlike cases of European countries)," Major added.
Global
liquidity, which is already viewed as ample, is set to increase further as some
central banks around the globe are trying to take quantitative easing steps to
prop up their fragile economic growth.
The head of the European
Central Bank (ECB) Mario Draghi said last week that policymakers agreed to
launch an unlimited bond-purchase program, known as outright monetary
transactions (OMT), to lower borrowing costs of troubled eurozone
countries.
Sustained inflows of foreign capital into Korean bonds are
driving down long-term market interest rates in South Korea. The yields of
three-year and five-year government bonds have stayed below the 3 percent level
of the Bank of Korea's key rate.
Major said given that liquidity from
Europe tends to look for safe and liquid assets with higher returns, Korea is a
well-positioned country for such investment.
He also stressed that the
ECB needs to take more aggressive quantitative easing steps as the eurozone
economy has a chance of falling into a double-dip recession.