Exodus from Market Starting?
There are concerns that the exodus of global investors has begun amid growing concerns over geopolitical risks. South Korean stocks ended lower as foreign investors started offloading local stocks last month for the first time this year.
According to the Korea Exchange on September 28, foreign investors net sold 1.65 trillion won (US$1.44 billion) worth of stocks on the KOSPI and KOSDAQ markets this month. In particular, foreigners recorded 836.1 billion won (US$728.31 million) in net sales of stocks for four trading days in a row.
With geopolitical risks from a conflict between North Korea and the United States having continued, there is an investor sentiment that takes precautions against the stock market fluctuation after a long closure. The selling mode of foreign investors has formed after more and more investors are taking a wait-and-see attitude toward the market.
Usually, foreigners increases the selloff for five trading days before the Chuseok holidays. They have shown the selling mode in the past five years except that they net bought 1.03 trillion won (US$898.08 million) worth of stocks in 2015 alone. However, foreign investors show an unusual trading trend this year due to concerns over stock market fluctuations caused by uncertainties from North Korea.
Stock market experts say that it is too early to worry about “sell Korea” because of its small size, though foreigners continuously net sells stocks owing to external factors. They show the strong selloff in the rapidly growing information technology (IT) and industry material industries but it is not worryingly strong since the fundamentals of the industries are sound.
Kiwoom Securities research head Park Hee-jung said, “Foreigners has shown the selling mode in August, the current selling trend doesn’t mean the exodus from the South Korean market.” Lee Jong-woo, head researcher at IBK Investment & Securities, also said, “The selloff amounts to 1.5 trillion won (US$1.31 billion) but it only accounts of 0.1 percent of the total market capitalization. It is not the move that makes a big impact on the general trend.”
According to the bond information center at the Korea Financial Investment Association (KOFIA), foreigners sold off 2.53 trillion won (US$2.2 billion) worth of won-denominated bonds from September 1 to 27. Notably, foreigners net sold bonds worth 3 trillion won (US$2.62 billion) for two days from the 26th to the 27th and this increased market jitters. This was because there were speculations that global capital started reducing its share of won-denominated bonds in its portfolio in earnest.
On the 28th, foreigners continuously showed the net selling trend. They sold off 55.1 billion won (US$48.08 million) worth of bonds as of 3:30pm on the same day. Taking a look at the monthly trading trend, foreigners are pulling out their capital from the domestic market. Foreign investors continued to show the net purchase trend after net selling 371 billion won (US$323.73 million) worth of bonds in November last year. However, they turned to net selling again from August for the first time in nine months.
Bond experts said that it is largely changes from the usual trading patterns of Templeton funds. They also said it is the bond selloff of Norway’s sovereign wealth fund that announced to clear up bonds of emerging countries but didn’t rule out the possibility of the exodus of foreigner caused by North Korea’s nuclear risks.
Lee Mi-sun, a senior researcher at Hana Financial Investment, said, “We think the massive bond sale by foreigners on the 26th was led by Templeton. Templeton tends to sell bonds on a large scale in a short period of time and reinvests in them with a similar scale a few days later.” In addition, she assumed that Norway’s sovereign wealth fund sold bonds of emerging countries while changing its benchmarks. However, Lee expressed concerns that Norway’s sovereign wealth fund can expand the selloff of won-denominated bonds. She also added that geopolitical risks of North Korea and foreigners’ investment sentiment from the Trump administration’s tax reform can be variables in the market.