Unconvincing Investment
As the United Arab Emirates (UAE) unexpectedly made a largest ever investment in the South Korean stock market in November last year, much attention has been given to what is behind it. The Middle East nation might have suddenly become attracted to domestic stocks. However, it is considered exceptional because there was a vast gap in the size of investments compared to its past ones and there was no large inflows of other Middle Eastern funds.
Stock market watchers said the timing coincided with a visit by South Korean Defense Minister Song Young-moo to the Middle East nation. Song visited the UAE last November to encourage South Korean troops deployed there. About a month later, South Korean presidential chief of staff Im Jong-seok traveled to the UAE and Lebanon as a special presidential envoy to visit South Korean troops deployed in the countries.
According to the Financial Supervisory Service (FSS) on January 3, the UAE held 9.46 trillion won (US$8.87 billion) worth of South Korean stocks as of the end of November biggest growth of the year.
The UAE purchased a net 967 billion won (US$906.28 million) worth of South Korean stocks last November. The country ranked first in terms of net purchase among countries that invested in South Korean shares. The figure even surpassed 856 billion won (US$802.25 million) of the United States, the largest investor in the South Korean stock market. The UAE also net bought 21 billion won (US$19.68 million) worth of shares on the KOSDAQ market.
Considering its moves in the past, the UAE made an exceptional amount of investment. The Middle Eastern nation dramatically increased its investments in South Korean stocks during the Lee Myung-bak government but decreased them during the the Park Geun-hye presidency, making different investment decisions according to an administration.
The nation’s holdings of listed South Korean shares, which stood at 2.86 trillion won (US$2.68 billion) at the end of 2008 when the Lee Myung-bak administration came to office, continued to increase to 5.446 trillion won (US$5.103 billion) at the end of 2009, 6.836 trillion won (US$6.406 billion) at the end of 2010, 6.837 trillion won (US$6.408 billion) at the end of 2011 and 8.24 trillion won (US$7.722 billion) at the end of 2012, Lee’s last year in office.
On the other hand, the amount of the UAE’s South Korean share holdings came to 8.242 trillion won (US$7.724 billion) at the end of 2013 during the first year of the Park Geun-hye presidency, up a mere 2 billion won (US$1.874 million) in a year. The figure slightly rose to 8.962 trillion won (US$8.399 billion) at the end of 2014 but kept decreasing since then to 8.254 billion trillion won (US$7.736 billion) at the end of 2015 and 6.931 trillion won (US$6.496 billion) at the end of 2016.
However, it gradually rebounded from last year, returned to the 8 trillion won (US$7.5 billion) level at the end of May when there was a presidential election and showed an increase since then. In November, the UAE started to show its buying spree and net purchased nearly 1 trillion won (US$937.21 million) worth of South Korean stocks. Accordingly, its holdings far exceeded 9 trillion won (US$8.43 billion) at the end of November.
The UAE might have just fascinated by South Korean shares but the KOSPI was adjusted and became bearish at that time.
In addition, a large amount of capital of other Middle Eastern countries, including Saudi Arabia, wasn’t flowing into South Korea. Saudi Arabia, which owned the largest amount of South Korean stocks among Middle Eastern countries, net bought as low as 61 billion won (US$57.17 million) of shares on the KOSPI in November last year, while it net purchased and net sold 21 billion won (US$19.68 million) of stocks, respectively, on the KOSDAQ market.
This is why questions were raised about the relevance with presidential chief of staff Im’s visit to the UAE from December 9 to 12 as well as Defense Minister Song’s visit from November 1 to 3. An official from the FSS said, “We don’t know why each country buys and sells stocks. So, we don’t know the exact reason why the UAE bought a large number of domestic shares at that time either.”
After Song and Im had a meeting with Mohammed bin Zayed Al Nahya, the Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, for two consecutive months, rumors have swirled that they visited the UAE to allay its concerns about the possible impact of the President Moon Jae-in's nuclear phase-out policy on a set of bilateral deals in which Seoul is to export and operate four nuclear reactors in the country, the reduction of troops to be deployed, the dispute over rebates and the overdue construction costs for South Korean companies.
Another rumor has recently added as the fact that Im met SK Group Chairman Chey Tae-won before his trip to the UAE was belatedly made public.
A day earlier, Justice Party Rep. Kim Jong-dae raised a question that Im’s visit was relevant to a backdoor memorandum of understanding (MOU) signed by the former government with the UAE. He said that the UAE filed a complaint as the former government signed the confidential agreement but didn’t come through on its promises such as the dispatch of troops in return for nuclear reactor exports, the provision of logistical and material support and the cooperation in defense technologies.