Foreign buying spree drives market rallies
Foreign investors are raking in Korean stocks this month on expectations that the market will remain bullish, as global interest rates as well as the so-called fear gauge, or CBOE Volatility Index (VIX), are showing signs of stabilization.
The robust first-quarter earnings performances of Korean tech, semiconductor and new energy companies, as well as a strengthening Korean won, have also propelled foreign investors to return to Korean stock markets. Korea’s benchmark KOSPI ended at 3,182.38, Wednesday, up 0.42 percent from the previous trading session. Compared to a month ago, the KOSPI has risen by more than 136 points, or 4.4 percent. Foreign investors continued buying Korean stocks to the tune of 104 billion won ($93 million) during Wednesday’s trading, and net purchased 2.55 trillion won worth of Korean stocks this month.
Foreign investors resumed their buying spree of local stocks after pausing for about five months, after they net purchased over 5 trillion won in Korean stocks last November. Since then, foreign investors turned to net sellers of Korean stocks, unloading 10.4 trillion won worth of shares in the last four months.
Their top picks this time are semiconductor stocks, namely Samsung Electronics and SK hynix. LG Chem, Samsung SDI, Kakao, SK Telecom and Naver are other Korean stocks popular with foreign investors this month.
Construction stocks such as Hyundai Engineering & Construction and GS Engineering & Construction are also among their top 10 choices, as they expect the housing supply to rise in Korea following the recent victory of opposition candidates in the mayoral by-elections for Seoul and Busan who favor boosting the housing supply in order to tame soaring property prices.
Experts explain the main reasons for the return of foreign investors as being the “positive macro- and micro-atmosphere” of global markets as well as the strength of KOSPI-listed conglomerates in innovative sectors. Given the landscape of the U.S.-led global economy, Korean stocks are expected to keep shining for some time.
“Global investors’ attitudes have switched towards a positive note after spending a period of anxiety over rising interest rates and market noise during the end of last year and early this year. The positive market conditions stemming from the U.S., as the new administration revealed plans to boost the infrastructure sector, have also spread to the Korean market,” Kim Yong-goo, strategist at Samsung Securities, said in a telephone interview.
“Large market cap companies listed on the benchmark KOSPI are mostly globally competitive IT, big tech and battery companies. Rising expectations over global economic conditions have changed investors’ positions on the Korean market,” Lee Kyoung-min, strategist at Daishin Securities, wrote in his latest report.
Experts also believe the equity market will view the resumption of short-selling as a positive rather than negative factor, because it removes restraints on foreign institutional investors, drawing more global liquidity into the Korean market.
“As the resumption of short-selling breaks current restraints, allowing foreign investors to take their normal dual positions in trading, I think that it will serve more of a positive role for the Korean market,” Samsung Securities strategist Kim explained. But Kim added that retail investors might be more cautious for the short term immediately after the resumption of short-selling.
Short-selling will resume partially on May 3 for large cap companies listed on the KOSPI. Retail investors have blamed short-selling for triggering share price declines when stock markets decline.