South Korea Will Ease Access for Foreigners to Its Capital Market

Embarrassed by its growing current account surplus, the South Korean government announced Wednesday that it planned to ease foreigners’ access to its capital market to attract more of their indirect investments.

Finance ministry officials said the capital of one of South Korea’s offshore closed-end investment funds will be doubled next year, and foreign investors will be allowed to convert their holdings of convertible bonds into equity shares.

The capital of the European Korea Fund, launched earlier this year on the London Stock Exchange, will be increased to $60 million from $30 million, the officials said.

Limited Opportunities

“It is part of our policy to liberalize the capital market gradually, step by step,” said one finance ministry official, who declined to be identified.

“We hope it will give more opportunities for foreigners to invest in our stock market,” he added.

At present, foreigners can invest in the local market only through five international trusts worth a total of $140 million, the $100-million Korea Fund, which is listed on the New York Stock Exchange, and the European Korea Fund.

The new move, officials said, will allow foreigners holding convertible bonds (CBs) issued by four South Korean companies to convert them into shares.

Samsung Electronics’ CBs, South Korea’s first convertible bond issued overseas, came to term on Oct. 19, but with the Seoul authorities still banning trading by foreigners there was no demand for shares.

Was Waiting for Move

So far, three other companies, Daewoo Heavy Industries, Yukong and Gold Star, have issued CBs on international markets.

A stock analyst at South Korea’s Daewoo Securities said: “We welcome the government measure. . . . We have been waiting for it to take action to liberalize the capital market.”

“With the growing current account surplus, we expect more pressure from our trading partners to open our markets,” one official said.

The surplus, reflecting the dynamic export-led South Korean economy, was $468 million in August.

Prices rose on the Seoul Stock Exchange on news of the capital market liberalization.

Brokers said investors actively bought shares in companies that issued overseas CBs in hopes of a greater flow of overseas funds into the market.

The composite index closed up 4.19 points at 494.64, extending Tuesday’s bullish trend.

In a related development Wednesday, South Korea’s Trade and Industry Ministry reported that the country’s trade surplus widened to $5.52 billion during the first 11 months of the year from $2.93 billion during year-ago period.

Officials said that South Korean exports during the January-November period surged 34.3% to $41.91 billion from the previous year’s comparable period, while imports increased 28.7% to $36.39 billion.

South Korean exports in November alone totaled $4.42 billion, up 37.5% from the same month last year, and imports increased 45.3% to $3.73 billion.

Ministry officials said November exports were led by electronics, textiles and steel, which accounted for 53% of the export volume for the month.