The Malaysian Reserve

Turkey fallout reaches South Korea

An employee arranges bundles of South Korean 50,000 won banknotes at the Counterfeit Notes Response Center of KEB Hana Bank in Seoul, South Korea, on Monday, Aug. 14, 2017. Photographer: SeongJoon Cho/Bloomberg

By BLOOMBERG

SEOUL • Turkey’s economic troubles are reverberating in a market for short-term investors all the way across the Eurasian continent in South Korea.

Investors pulled 8.7 trillion won (RM32.29 billion) from mutual funds dealing in short-term debt and other cash-like instruments last Friday, the biggest single-day outflow ever from such products, according to the latest data from the Korea Financial Investment Association.

They had been snapping up securities backed by deposits at Middle Eastern banks in recent months.

“Investors seem to have gotten nervous about the situation in Turkey,” said Kim Ki-myung, a credit analyst at Korea Investment & Securities Co in Seoul.

The pullback by Korean investors underscores the broad impact of Turkey’s troubles on global markets.

South Korea’s money market funds have been trying to earn extra yield by betting on deposits at Middle Eastern banks, especially those from Qatar, but the lenders’ exposure to Turkey has started to cause concern among those investors.

Sales of securities backed by Middle Eastern bank deposits jumped 23% in the first half to 10.3 trillion won, data from Korea Investors Service show. Money market funds as a whole came to about 106 trillion won as at end-June.

Kim said jitters about Middle Eastern deposits may prove temporary, and while Qatari lenders have exposure to Turkey, they should be able to absorb any worsening of the situation.