China's holdings of Korean securities to hit US$30 bln by 2014

SEOUL, May 3 (Yonhap) -- Chinese ownership of South Korea's stocks and bonds is expected to expand to US$30 billion by 2014 as the world's No. 2 economy moves to diversify its foreign exchange reserves, a report said Tuesday.
Chinese investors held a total of 11.5 trillion won ($10.8 billion) worth of local shares and debts as of the end of March, compared with 9.6 trillion won end-2010, according to the report by the Korea Center for International Finance.
"Chinese investments in Korean securities may hover over at least $30 billion in two to three years," the report predicted, citing Beijing's strategy to diversify into currencies other than the U.S. dollar.
"Widening interest rate gaps in China and the U.S. have pushed up costs for China to manage its foreign currency reserves that amounted to about $3 trillion as of end March."
Recent monetary tightening by China has made its interest rates 3.1 percentage points higher than those in the U.S., which is still staggering from a feeble economic recovery, it noted.
The growing interest difference has also exerted upward pressure on the Chinese yuan, prompting the country to cut holdings of U.S. treasury bonds and to purchase other sovereign assets for the foreign currency reserves, according to the institute.
As part of the diversification move, China has sharply increased net buying of Korean stocks and sovereign bonds in the past three years and the buying spree is forecast to continue due to the high yields the local securities generate, the report said.
The strong demand from China has helped drive hefty gains in South Korea's benchmark stock index, which closed at a record high of 2,228.96 on Monday.
In the first quarter, a net 1.78 trillion won of Chinese funds flowed into local shares and bonds, while the overall foreign funds posted a net outflow of 2.3 trillion won.
Chinese ownership of local securities only reached 400 billion won as of the end of 2008 but grew to 4 trillion won a year later before reaching nearly 10 trillion won in 2010, according to the report.
pbr@yna.co.kr