In the first half of this year, the Korean stock market saw a record inflow of foreign investment, but institutional and individual investors continued to sell heavily, resulting in the Korean stock market performing poorly compared to other major countries.
According to statistics released by the Korea Exchange Information System (KEIDS) on the 30th, net purchases by foreign investors in the Korean stock market from early January to June 28th this year amounted to 22.995 trillion won (approximately 17.033 billion dollars). This far surpassed the all-time record of 12.2393 trillion won invested by foreign investors in the first half of 2004. As of the closing price on the 28th, foreign investors’ share of the market capitalization of the Korea Composite Stock Price Index (KOSPI) was 35.63%, up 2.91 percentage points from the beginning of the year.
The stock purchased the most by foreigners was Samsung Electronics, with net purchases of 7.9971 trillion won in the first half of the year. Foreigners also bought 3.8034 trillion won worth of SK Hynix shares and 3.4541 trillion won worth of Hyundai Motor shares.
The “Buy Korea” trend among foreigners is evident when one looks at the inflow of global fund money into other countries such as Taiwan. According to the International Finance Center, as of June 26 this year, US$4.64 billion (approximately 6.4 trillion won) had flowed into the Taiwanese stock market, a mere 27.8% of the domestic inflow. While global fund money is flowing back into the Chinese stock market, the net inflow was US$6.25 billion (approximately 8.62 trillion won), still not reaching the domestic inflow. The Indian stock market, which saw inflows of global funds last year, has seen an outflow of US$770 million (approximately 1.622 trillion won) so far this year.
The securities industry believes that foreigners are likely to continue to buy Korean stocks on a net basis. Hana Securities said, “As US manufacturing investment continues, South Korea’s exports are likely to continue to grow,” adding, “There is a high correlation between the KOSPI’s foreign net purchases and (South Korea’s) export growth rate.”
Kim Hak-gyun, head of research at Shinyoung Securities, said, “Foreign investors have high expectations for the ‘value-up program’ which uses Japan as a benchmark, and large amounts of capital are flowing in due to the recovery of the semiconductor industry.” He added, “If they also benefit from China’s economic recovery, capital inflows are likely to remain constant until the third quarter.”
Noh Dong-gil, a researcher at Shinhan Investment, also said on the 19th, “The foreign ownership ratio by market capitalization has only just recovered to the average level since 2010. The foreign ownership ratio in KOSPI has risen to 36.8% amid the COVID-19 pandemic. Concerns about the supply of foreign investors are unfounded.” According to Noh, every 1% increase in the foreign ownership ratio translates into net purchases of around 20 trillion won.
Meanwhile, in the South Korean stock market, individual investors and domestic institutional investors recorded large-scale net selling. According to the Korea Exchange, individual investors recorded net selling of 7.863 trillion won in the South Korean stock market in the first half of this year. During the same period, institutional investors also recorded net selling of 12.7507 trillion won, withdrawing nearly 20 trillion won from the South Korean stock market.
The funds withdrawn from the Korean stock market appear to have been mobilized for overseas investment. According to the Korea Securities Depository Center, domestic investors bought more than US$7.72 billion in US stocks and more than US$527 million in Japanese stocks in the first half of this year. More than 11 trillion won flowed out of the US and Japanese stock markets alone.
As a result, foreign stock holdings by domestic investors increased 23.31% from $103.53086 billion (approximately 142.8208 trillion won) at the beginning of the year to $127.66373 billion (approximately 176.1121 trillion won). Stock holdings in the U.S., European and Japanese markets have been increasing every month for the past three months.
Individual investors recently purchased 27.1 billion won worth of “Codex Inverse,” which will generate profits if the KOSPI falls, in one month. While foreign funds have been flowing in, domestic investors have purchased exchange-traded funds (ETFs) that predict a decline in the Korean stock market. During the same period, individual investors also purchased 308.9 billion won worth of “Codex 200 Futures Inverse 2X ETF,” also known as a “double inverse,” which aims for a twice as negative correlation with the KOSPI 200 Futures Index.
