China’s holdings of South Korean government bonds almost tripled in the first nine months of this year as policymakers shifted part of the world’s largest foreign-exchange reserves out of US dollars.
The amount of South Korean treasury bonds owned by China totaled 5.15 trillion won (US$4.6 billion) at the end of last month, 175 percent more than at the start of the year, according to data released yesterday by South Korea’s Financial Supervisory Service.
Chinese holdings of US Treasuries fell 5.4 percent in the first seven months of this year to US$846.7 billion, US data show.
“China continues to diversify its foreign-exchange reserves away from dollars to help contain risk,” said Choi Seok-won, a fixed-income analyst at Samsung Securities Co in Seoul. “It also may want to prevent its currency from strengthening against the won and the yen to protect exports.”
The South Korean government debt has handed investors an 8.2 percent return this year, according to an index compiled by HSBC Holdings PLC. The securities have delivered a profit in each of the last nine months, the best winning streak since Bloomberg records began in 2002.
China’s holdings of South Korean notes account for less than 0.2 percent of its US$2.45 trillion reserves, which are being more heavily invested in Japan.
The third-quarter increase of US$1 billion in South Korean Treasury bonds, little changed from US$1.1 billion in the previous three months, compares with net purchases of Japanese debt totaling US$7 billion in July alone.
Overseas investors’ holdings of South Korean debt fell 0.1 percent last month to 74.6 trillion won, yesterday’s data showed. Foreigners owned 6.7 percent of the country’s outstanding bonds.
Meanwhile, the South Korean won rose for a sixth day, its longest winning streak in eight weeks, after the nation’s foreign-exchange reserves climbed to a record.
The currency strengthened to a four-month high after a central bank report showed that reserves increased US$4.4 billion to US$289.8 billion last month. The holdings can cover three months of imports or settle short-term debt and so are sufficient to cope with any crisis, the finance ministry said, adding that it was prepared to intervene in the currency market to combat volatility.
“Increasing foreign-exchange reserves means there are more dollars coming into the country,” said Yun Se-min, a Seoul-based currency trader at Busan Bank. “That means more dollars are being exchanged for won, which is a factor that strengthens the local currency.”
The won appreciated 0.7 percent to US$1,122.35 in Seoul as of the 3pm close, according to data compiled by Bloomberg. It earlier touched 1,122.30, the strongest level since May 5, and is Asia’s best performing currency of the last three months with a 9.4 percent advance.
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