With US Dollar Weakening
With the U.S. stock market achieving its longest rise in its history, foreign investors are returning to the domestic market at a faster pace. This is largely due to fact that the strong U.S. dollar, which was an obstacle for global money in investing in emerging markets, eased and the won-dollar exchange rate decreased. In particular, foreign funds injected into the main KOSPI bourse are purchasing top technology stocks, which are similar to leading stocks in the U.S. stock market. This is why expectations are growing that the decoupling with the U.S. stock market, which was considered a factor of the bear market in South Korea, can be settled this year.
The KOSPI index closed at 2,307.35 on Aug. 30, down 0.07 percent, or 1.68 points, from the previous trading day. It broke a winning streak from the 17th in just 10 trading days but it rose to 2,320.85 during mid-day trading, surpassing the 2,320 level for the first time in two months after 2,327.59 on July 2.
The historic bull market in global equities based on the U.S. also has a positive effect on the domestic market. As technology stocks, such as Amazon (3.38 percent) and Alphabet (1.51 percent), took the lead in the rise of the New York Stock Exchange on the 29th (local time), the NASDAQ and the S&P 500 Index hit a record high at the same time. Accordingly, the NASDAQ and the S&P 500 Index reached an all-time high for four trading days in a row from the 24th.
The recent string of records in the U.S. stock market leads to foreigners’ net purchases of domestic stocks. According to the Korea Exchange (KRX), foreign investors bought 218.8 billion won (US$196.23 million) worth of stocks on the KOSPI market on the same day. They made net purchases for eight consecutive trading days from the 21st. This is the longest period of foreigners’ net purchases on the KOSPI market this year. The amount of their investments came to 1.28 trillion won (US$1.15 billion) over the same period, which was more than three times higher than the total amount of net purchases of 373.3 billion won (US$334.98 million) last month. Foreign investors net bought nearly 2 trillion won (US$1.79 billion) worth of stocks in January and sold them for the fifth straight month from February to June. However, they purchased over 1 trillion won (US$896.94 million) worth of stocks again in August, raising expectations for a higher KOSPI Index in the second half.
Foreigners are returning to the domestic stock market at a faster pace because the strong U.S. dollar, which forced the stock market of emerging countries to drop compared to advanced markets, including the U.S., has become weaker. The U.S. Dollar Index, an index, or measure, of the value of the U.S. dollar relative to the value of a basket of currencies of six major countries, recorded at 94.52 on the foreign exchange market in New York on the 29th, down 0.12 percent, or 0.11 point, from the previous trading day.
The easing of the strong U.S. dollar led to the rise in the value of the Korean won. The won-U.S. dollar exchange rate closed at 1,108.60 won on the foreign exchange market in Seoul on the same day, down 1.6 won from a day earlier. The figure closed at below 1,110 won for the first time since June 22. When the won-U.S. dollar exchange rate rises, foreigners tend to invest in domestic stocks due to foreign-exchange profits in the future.
As the won-U.S. dollar exchange rate increases and foreign investors are returning to the domestic stock market at a faster rate at the same time, experts expect that the decoupling between the KOSPI and the U.S. stock market, which was the keyword that explains the bearish market in South Korea, can break this year. Particularly, foreigners have been purchasing mostly technology stocks, like Samsung Electronics, on the KOSPI market. The technology stocks have similar features with leading stocks in the bullish market in the U.S. so global funds are betting on the U.S. and South Korean stock markets at the same time, according to experts. The KRX said that foreigners purchased Samsung Electronics shares the most at 586.9 billion won (US$527.36 million) on the KOSPI market this month, followed by Samsung Electronics’ preferred shares at 128.1 billion won (US$115.07 million), Naver at 114.1 billion won (US$102.49 million), Samsung Electro-Mechanics at 76.6 billion won (US$68.8 million), Kakao at 57.8 billion won (US$51.92 million) and Samsung SDS at 49.8 billion won (US$44.73 million), which are all major technology stocks in the nation.
With the recent bullish market in the U.S. and expectations for the settlement of trade negotiations with Canada, the trade dispute between the U.S. and China needs to be resolved in order for the KOSPI Index to be coupled with the U.S. stock market in earnest and show an upward movement. Kim Young-hwan, a senior analyst from KB Securities, said, “The profit outlook on the South Korean stock market can change depending on how the trade war between the U.S. and China goes. So, the domestic stock market shows a higher conformity with the Chinese stock market. The U.S. and China needs to accommodate the trade conflict in order for the South Korean stock market to gain.”