US funds are saving the Korean stock market. European investors are taking profits as the won-dollar exchange rate is falling these days, whereas American funds are expected to buy Korean stocks for the time being.
According to industry sources, the Korean stock market ranked second in terms of rate of return between August 12 and September 10 among the 49 countries in the Morgan Stanley Capital International (MSCI) Index. The earnings rate amounted to 11.4% on a US dollar basis.
In the Korean stock market, foreign investors have net bought shares worth 6.5 trillion won (US$6.0 billion) in total since July this year. US funds have accounted for the largest part. Specifically, the amount of net buying by foreign investors reached 2.9 trillion won (US$2.67 billion) on a settlement basis between July and August, and that by US funds added up to 3.8 trillion won (US$3.5 billion). As of last month, US investors owned listed stocks worth 156 trillion won (US$143.7 billion) in the country, which is equivalent to 39.4% of the total holdings by foreigners.
It is thanks to American funds that the KOSPI showed an upward movement in spite of the 3.4 trillion won (US$3.1 billion) worth of net selling by European funds for the past two months. Experts are saying that the aggressive buying can be attributed to their portfolio adjustment in Asian countries. Their influence in the market is expected to get stronger with time, because they are more oriented toward long-term investment than their European counterparts that are taking profits, with the won-dollar rate having touched 1,086 won per US dollar.
“Global economic conditions are the key for them to continue buying Korean stocks,” said Oh Tae-dong, research analyst at LIG Investment and Securities, adding, “Statistics show that foreign investors have purchased Korean stocks only when the ISM Manufacturing Index is at least 53.” At present, the index is at 55.7.
“It is the Korean, Taiwanese, and Chinese stock markets that are expected to benefit the most from a stronger global economic recovery down the road,” he went on, advising, “Still, there is also some possibility that more funds would be redeemed in Korea in that the KOSPI has gone up from 1,800 points to 2,000 without any adjustment.”