Large influx of foreign investment unlikely for stock, bonds markets: think tank

SEOUL, May 17 (Yonhap) -- A large influx of foreign investment into local stocks
and bonds is unlikely for the foreseeable future, a state-run think tank said
Sunday.
The Korea Development Institute (KDI) assessment said large amounts of liquidity
being supplied by advanced industrialized countries and the lowering of interest
rates are designed mainly to help stabilize their own financial institutions.
It pointed out that because support funds will be used domestically, there is
little leeway for such funds to be diverted to overseas markets.
"Because such funds will not reach the South Korean market in any meaningful
amount, there is little chance of a liquidity-based boom like the one witnessed
in the early part of this decade," a KDI researcher said.
The think tank added that while no rush to buy South Korean shares or bonds is
expected, there should not be any moves by foreign investors to shed local
holding either.
The think tank, which provides policy consultations to the government, meanwhile,
said Seoul should be cautious about implementing measures that could affect the
movement of foreign exchange.
It pointed out that any restrictions to the movement of liquidity may have
repercussions across the board and hurt foreign investment.
The warning comes after calls by some experts for the country to limit the
movement of liquidity in certain emergency situations to prevent sudden, sharp
fluctuations in exchange rates.
The depreciation of the won and the erratic swings of the local bourse in recent
months has been attributed to overseas investors selling their holdings and
repatriating funds in the wake of the U.S. financial crisis that rocked the
world.
KDI said any direct intervention could scare off foreign capital, causing a
contraction in the local financial market. Such developments can upset domestic
interest and foreign exchange rates, exerting ai negative influence on the
overall economy.
yonngong@yna.co.kr
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