Putting High Earnings Rate Before Inconvenience
South Korean retail investors are shopping overseas stocks despite many factors to be considered such as fees, exchange rates and taxes. The reason is simple: a higher earnings rate. They prefer to purchase foreign stocks directly despite inconvenience rather than wait for ages to see stock prices go up in the slow domestic market.
The Korea Composite Stock Price Index, or KOSPI, index rose only 4.1 percent from Jan. 1 to June 21, according to Korea Exchange (KRX) on June 25. It shows the dull box pattern trend trapped in from 2,000 to 2,250 points all through the year. The stock market of major countries, including the United States, has a higher increase in the indexes than South Korea. The three largest U.S. indexes in New York all recorded a double-digit growth over the same period. The Dow Jones Industrial Average increased 14.5 percent, while the NASDAQ Composite Index and the Standard & Poor's 500 (S&P 500) grew 21 percent and 17.7 percent, respectively. The Shanghai Composite Index (SSEC) and Hang Seng index of Hong Kong (HSI) also had a 20.4 percent and a 10.2 percent of gains despite the trade dispute between the United States and China.
Given the current situation, the size of overseas stock investments is on a sharp rise very year. The purchase amount of overseas stocks by South Korean individual investors surged from US$6.37 billion (7.38 trillion won) in 2016 to US$12.08 billion (14 trillion won) in 2017 and US$17.07 billion (19.78 trillion won) in 2018, according to the data from the Korea Securities Depository (KSD). The figure has already come to US$9.13 billion (10.58 trillion won) so far this year and it is expected to surpass US$20 billion (23.18 trillion won) by the end of the year, reaching a record high.
U.S. and Hong Kong stocks ranked at the top 10 list of best-selling overseas stocks. “China AMC CSI 300 Index EFT” listed on the Stock Exchange of Hong Kong took first place in terms of purchase amount of money. It is an exchange-traded fund (ETF) that invests in blue-chip companies listed on the China Exchange. It moved up one notch from second place last year as the Chinese stock market turned to bullish this year. Its rate of return reaches 27.95 percent this year alone. Amazon.com Inc. ranked second, followed by Microsoft Corp. and Alphabet Inc.
In addition to these shares, half on the top 10 best-selling overseas stocks were ETFs. Alibaba Group, Tencent Holdings Ltd. and Netflix Inc. failed to make the top 10 list this year. An official from the investment banking industry said, “This is because the rising number of overseas stock beginners has led to growing interest in ETFs which has less pressure than direct investment in a single stock and the trade dispute between the United States and China has lowered the preference for Chinese firms.”
As investors are turning their eyes to the global stock market, South Korean stock market is rapidly shrinking. The average amount of daily transactions in the KOSPI market fell from 6.55 trillion won (US$5.65 billion) in 2018 to some 5 trillion won (US$4.31 billion) this year. The amount of transactions dropped to 4.66 trillion won (US$4.02 billion) this month, though the government has cut the transaction tax for stocks from the end of last month.