Due to Negative Factors
Foreign investors’ capital in flowing into China as leading items in the South Korean stock market being losing strength due to China’s escalating economic retaliation against Korean firms over the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) missile system.
According to the Korea Exchange on August 31, foreigners sold 108.2 billion won (US$96.01 million) worth of stocks in the domestic market, net selling for five trading days in a row. With foreign investors extending their selling binge, the benchmark Korea Composite Stock Price Index (KOSPI) dropped 0.38 percent to close at 2,363.19, showing the decrease in one day. Foreigners had been continuously buying Korean stocks until the first half of this year. Accordingly, the KOSPI index got of the box pattern and maintained the upturn for eight consecutive months from December last year to July this year. However, the index has seen its upward trend stop as foreign investors have been seeking to make marginal profits from July. Foreigners net sold stocks worth 524.7 billion won (US$465.57 million) in July and nearly 2 trillion won (US$1.77 billion) in August.
Foreign investors’ capital is flowing into the Chinese stock market while the domestic stock market is shaking with their rightabout. They net bought 25.25 billion yuan (US$ 3.82 billion or 3.85 trillion won) worth of Shanghai stocks, called A-shares, through the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect in a month between August 1 and 30. The figure increased more than 160 percent from US$9.64 billion yuan (US$1.46 billion or 1.64 trillion won) of net purchase prices in January.
Lee Eun-taek, an analyst at KB Securities, said, “After China's yuan has been strong from May, the capital is flooding in China. With liquidity expansion, the Chinese stock market has been looking bullish. The Shanghai Stock Exchange Composite Index surpassed the 3,300-point mark on August 25, reaching a record high in 19 months. It has been two years after the index fell below the 3,000-point mark in August 2015.
Foreign investors are turning to the Chinese market because the China’s profit momentum and stock market surroundings have turned favor compared to South Korea. Recently, South Korea has been facing more risks caused by geographical factors, slower performance and the court’s first ruling for Vice Chairman Lee Jae-yong. Experts expected the foreigners will stop net selling South Korean stocks when concerns over geographical factors are relieved but they will show a negative supply and demand until September.
China is attracting more foreign investors as corporate performance and economic situation are continuously improving. According to Bloomberg, the combined net profit of companies listed on the Shanghai stock market in the first half of this year grew 29 percent on average compare to the same period a year ago. Kim Hyo-jin, an analyst at SK Securities, said, “Chinese companies’ profit growth rates fell short of their rate of debt increases after the economic slump in 2008. However, their corporate profits are higher than the rate of debt growth for the first time in a long time.”
Moody's rating agency raised China’s economic growth rates this year from 6.6 percent to 6.8 percent. Kim said, “There is a little chance that China will have some 7 percent of economic growth rates for now but the agency slightly increased the rate as the nation’s economy shows decreasing risks.” In addition, it is favorable that China A-shares will be included in the Morgan Stanley Capital International (MSCI) emerging market indices in June next year. When China A-shares are included, the share of China in the MSCI emerging market indices will rise from 28 percent to 35 percent. Ko Seung-hee, an analyst at Mirae Asset Daewo, said, “When the share in the MSCI emerging market indices is adjusted, global institutional investors will also adjust their portfolios according to the share of countries. Accordingly, more foreign capital will flow into the Chinese market.”