Attention to Money Flow
Due to an anti-Korea sentiment over the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) system and the tight money market in China, Chinese capital worth 468 billion won (US$410.13 million) slipped from the domestic stock market this year. As there is a growing concern that U.S. capital will leave South Korea due to a similar interest rate in the two countries, all eyes are on whether U.S. funds will sell their stocks in the local market.
According to the Financial Supervisory Service (FSS) on June 19, China net sold local stocks worth 468 billion won (US$410.13 million) from January to May this year. China sold South Korean stocks for nine months in a row from August last year to May this year, except for January this year. It bought only 38 billion won (US$33.3 million) worth of stocks in January. China showed a net purchase worth 1 to 2 trillion won (US$876.58 million to 1.75 billion) every year until 2014 but suddenly turned to a net sale worth 136 billion won (US$119.19 million) starting from 2015, reducing its ratio in the South Korean market. The ostensible reason is a conflict over the THAAD. Chinese investors, which net purchased 453 billion won (US$396.95 million) worth of stocks in November 2015 but net sold 589.1 billion won (US$516.21 million) worth of stocks in December when the dispute over the THAAD started escalating.
The domestic market is paying attention to U.S. capital now. This is because the U.S. Federal Open Market Committee (FOMC) raised key interest rates another 0.25 percent on the 14th (local time). After the financial crisis in 2008, the U.S. stuck to a zero interest rate policy and U.S. money flooded into emerging countries. Considering the fact that South Korea is one of beneficiaries, the South Korea stock market faces a crisis now.
In fact, the U.S. accounts for the most part of foreign investments which have led the local stock market. Starting with a net purchase worth 7.4 trillion won (US$6.48 billion) in 2009, U.S. investors were top buyers of local stocks every year for eight years until last year. They also net bought 969 billion won (US$849.26 million) worth of stocks until last month this year, totaling 61.69 trillion won (US$54.08 billion) from 2009. As of last month, the U.S. accounted for 41.5 percent of 581.17 trillion won (US$509.58 billion) of the total foreign ownership.
However, market experts say that U.S. investors are unlikely to leave the country right away. Sang-hyun, an analyst with HI Investment & Securities, said, “Considering the U.S. Fed’s pace to raise interest rates, flow of U.S. dollars and South Korea’s economic fundamentals, there is a slim chance that the reverse of interest rates between Korea and the U.S. will cause the withdrawal of large-scale foreign capitals.”
Rather, some even predict that more foreign capitals will flow into the domestic stock market. Kyung-min, an analyst at Daeshin Investment & Securities, said, “The reverse of interest rates is not a decisive variable to make global liquidity leave the South Korean financial market. Rather, there will be high expectations for South Korea’s economy, profit momentum and policy in the medium and long term and it is highly likely to draw more foreign capitals to the country. The variables that can adversely affect the KOSPI in the short term are the Fed’s downward readjustment of price forecasts and the US’ weaker technology stocks. We need to confirm the soundness of the domestic stock market in the second quarter this year.”