Retaliation in Seoul Bourse
According to the Financial Supervisory Service, Chinese investors net-sold stocks worth 123 billion won in the South Korean stock market in February. Their net selling has continued since August last year with the exception of January this year, when the net buying totaled 38 billion won.
Their net selling from August to December 2016 added up to 780.6 billion during discussions on THAAD deployment in South Korea. As a result, Chinese investors’ total fund in the South Korean stock market fell from 9.337 trillion won to 9.173 trillion won between the end of 2015 and the end of January this year.
They are predicted to withdraw from the market at an increasing pace over time as the Chinese government has recently begun to put direct pressure on South Korea by, for example, imposing restrictions on travel to South Korea.
This is worrisome because Chinese investors are one of the groups of investors that have bolstered the South Korean stock market since the global financial crisis in 2008. According to Daishin Securities, net buying by foreign investors in KOSPI since 2008 totals 31.2 trillion won with that by Chinese investors being 7.6 trillion won, third-largest behind those by their American and European counterparts.
Another factor that is accelerating the withdrawal is the depreciation of the yuan. On March, 7, the People's Bank of China appreciated the yuan by 0.15% to 6.8896 yuan per U.S. dollar. With China’s foreign exchange reserves falling short of US$3 trillion, seven yuan per U.S. dollar as a psychological line is being threatened. “The Chinese government is likely to put a curb on capital outflow in order to stabilize the foreign exchange market and then Chinese investors may pack up and leave,” said Daishin Securities.
In the meantime, the stock prices of major KOSPI-listed South Korean companies that are more influenced by Chinese consumers fell on March 7. For example, Shinsegae shares lost 1.63%, Hana Tour 1.4% and LG Household & Health Care 1.39%.