South Korea may use part of FX reserves to buy yuan assets

South Korea is preparing to allocate part of its $307 billion in foreign exchange reserves to yuan-denominated assets in an effort to diversify its increasing reserves, officials from the central bank and the finance ministry said on Wednesday.
The Bank of Korea applied for the Qualified Foreign Institutional Investor (QFII) license in China earlier this year to secure a quota to invest in mainland capital markets. It has been awaiting a reply. "Taking into consideration the speed of China's growth rate, China is well worth being considered as one of the countries in which to invest," Hong Taeg-ki, head of the Bank of Korea's Reserve Management Group, told Reuters.
Earlier in the day, the Chosun Ilbo daily reported that South Korea was seeking to buy Chinese treasury bonds in yuan to include yuan assets in its foreign exchange reserves. The newspaper quoted an unnamed source, described as a senior official in charge of foreign exchange policy, as saying that the government was planning to remove domestic regulatory obstacles that prohibit putting foreign exchange reserves into the yuan currency assets.
At the end of last year, non-dollar assets represented 36 percent of South Korea's FX reserves, which soared to the highest ever at the end of April, with stronger translated value of the euro and the pound. The reserves ranked seventh in the world at the end of March.
A finance ministry official overseeing foreign exchange markets said the government was planning to use part of its FX reserves in the yuan-denominated assets, but the amount would be limited. "If we are granted the license, we will buy them little by little," the official told Reuters, without elaborating further.
Securities, including US Treasuries, made up 88.5 percent of South Korea's FX reserves at the end of April. The Bank of Korea provided no breakdown on the securities holdings. Separately, data showed that Chinese investors boosted their holdings in South Korean won bonds last month, continuing a nearly two-year buying spree.