Fire Sale
The ratio of Korean stocks owned by foreign investors has hit a six-year low as mainly European inestors are continuing to sell their stocks to take profits from the Korean market.
According to the Korea Exchange, the aggregate market value of KOSPI and KOSDAQ shares owned by foreign investors totaled 428.9467 trillion won (US$368.4652 billion), equivalent to 29.22 percent of total market capitalization, in July this year. This percentage is the lowest since August 2009, when it reached 28.94 percent. It has remained above 30 percent since November 2010, but decreased to 29.72 percent in June this year.
Two months ago, foreign investors recorded net sales worth 389 billion won (US$334 million) in the Korean stock market for the first time in five months. Last month, the net sales amounted to 2 trillion won (US$1.7 billion). European investors’ net sales reached 2.6 trillion won (US$2.2 billion) in July and 2.9 trillion won (US$2.5 billion) in the previous month. They are characterized by short-term investments led by hedge funds and tend to seek investment destinations while reacting sensitively to foreign exchange and interest rates.
The recent trend is associated with foreign exchange rates, too. With the won-dollar exchange rate on the rapid rise these days, foreign investors are selling their Korean stocks for fear of foreign exchange losses. The rate exceeded 1,170 won per U.S. dollar on July 31, which was for the first time in 37 months. Major Korean companies’ less-than-expected performances for the second quarter of this year have added fuel to the fire as well.