Hitting All-time High
The total amount of foreign ownership of South Korean stocks surpassed the 620 trillion won (US$554.07 billion) mark for the first time ever, up 17.44 trillion won (US$15.59 billion) in eight trading days.
According to the Koscom, the systems manager of South Korean bourse operator Korea Exchange, on July 23, the market capitalization of stocks held by foreigners stood at 602.19 trillion won (US$554.23 billion) as of the 21st. The figure increased more than 17 trillion won (US$15.19 billion) in eighth trading day after recording at 602.6 trillion won (US$538.52 billion) on the 11st.
The market capitalization of stocks held by foreigners is rapidly growing as foreigners are investing in local stocks at a rapid pace. In particular, foreign investors have increased their investments in not only the KOSPI but also the KOSDAQ market at a quicker pace.
According to the Korea Exchange, foreign investors net purchased nearly 12 trillion won (US$10.72 billion) in both the KOSPI and KOSDAQ markets from January 1 to July 21 this year. They bought a total of 11.95 trillion won (US$10.58 billion) worth of South Korean stocks – 10.6 trillion won (US$9.48 billion) in the KOSPI market and 1.34 trillion won (US$1.2 billion) in the KOSDAQ.
On the other hand, individual investors sold a total of 6.85 trillion won (US$6.12 billion) worth of local stocks – 4.63 trillion won (US$4.14 billion) in the KOSPI and 2.21 trillion won (US$1.98 billion) in the KOSDAQ – over the same period, while institutional investors sold a total of 11.17 trillion won (US$9.98 billion) worth of stocks – 8.67 trillion won (US$7.75 billion) in the KOSPI and 2.5 trillion won (US$2.24 billion) in the KOSDAQ..
Accordingly, the market capitalization of stocks held by foreigners accounts for 34.2 percent of the total market cap of listed stocks that stands at 1,812.96 trillion won (US$1.62 trillion), up 0.16 percent point from 34.04 percent as of the 11th.
In particular, the total amount of foreign ownership of South Korean stocks showed a remarkable growth in the KOSDAQ market. Foreign ownership of stocks traded on the KOSDAQ market reached 24.44 trillion won (US$21.84 billion) as of the 21st, taking up 11.11 percent of the total KOSDAQ market. The number of KOSDAQ-listed stocks owned by foreigners also increased 6.27 percent to 1.97 billion shares.
An official from the Korea Exchange said, “Foreign investors still don’t account for a high percentage of the KOSDAQ market but they are increasingly taking up more portion. It is very encouraging that the net purchase and number of shares traded by foreigners are growing sharply this year compared to last year.”
In fact, foreign investors net bought 1.34 trillion won (US$1.2 billion) worth of stocks in the KOSDAQ market from the beginning of the year to July 21, far exceeding 1.02 trillion (US$912.15 million) of the total net purchase last year. In 2015, foreigners net sold 330.2 billion won (US$295.08 million) worth of stocks in the KOSDAQ market.
Meanwhile, the securities industry expects that foreigners will keep buying South Korean stocks and the domestic stock market will hit 2,500 points soon.
Foreign investors are expected to net purchase more South Korean stocks due to favorable factors from the U.S. and China and stronger emerging country currencies as well as expectations for the South Korea discount settlement, such as domestic companies’ good performance and new government’s efforts to improve the governance structure.
Kim Hoo-jung, an analyst at Yuanta Securities, said, “Foreigners bought more than 11 trillion won (US$9.84 billion) worth of South Korean stocks this year, reaching a fresh record high every day. Notably, investors from the U.S. took up the largest portion, net purchasing 10.9 trillion won (US$9.75 billion) worth of local stocks since early this year.”
He also said, “Taking a look at the percentage of asset allocated by Norway’s Government Pension Fund Global (GPFG), Dutch pension fund ABP and Harvard Management Company, the institutions have aggressively expanded their investments in stocks of emerging countries from early last year to until now. Considering the medium to long-term investment patterns of overseas institutional investors, it is highly likely to maintain a positive outlook for stocks in emerging countries in the future.”
By contrast, there are also concerns that foreigners are likely to sell South Korean stocks due to growing concerns over weaker Korean won and non-IT performances.
Cho Seung-bin, an analyst at Daishin Securities, said, “Foreigners have already begun net selling in the Taiwanese and Indian stock markets in the past month due to the weakening currencies of the emerging markets. We need to wait and see if this trend will spread to other Asian markets. Particularly, the non-IT performance consensus in the second quarter has downgraded and foreigners are selling IT stocks now. With mounting concerns over the weak Korean won and non-IT performance, foreign investors are highly likely to begin net selling in the local stock market.”