Foreign Investors Recorded Large-scale Net Selling in Korean Stock Market in Nov.

Yuanta Securities announced on Dec. 12 that foreign investors posted a net selling of US$3,025 million in the South Korean stock market last month. The net selling volume exceeded those in nine major emerging stock markets. For example, the volume was US$2,115 million in Brazil, US$493 million in Indonesia, US$259 million in the Philippines, and US$255 million in Thailand.

In the meantime, the investors posted a net buy of US$3.15 billion in India, US$1.96 billion in Taiwan, and US$9 million in Pakistan. In South Korea, those investors continued to sell their stocks in the first week of this month. Specifically, the net selling volume totaled US$682 million during the period.

This has to do with the MSCI emerging market index rebalancing on Nov. 26. Foreign investors reduced their stocks in the South Korean market even before the event that resulted in a decrease in the ratio of South Korean companies in the emerging market index. In the KOSPI market, they recorded a net selling for 21 trading days in a row from Nov. 7 to Dec. 5. This is likely to continue if Saudi Aramco is included in the emerging market index.

“Saudi Aramco’s inclusion is likely to lead to a 0.15 percentage point decrease in the ratio of China and a 0.05 percentage point decrease for South Korea and Taiwan each,” KB Securities said in its recent report, adding, “Although passive funds’ selling is estimated to reach 641.1 billion won in China and 215.7 billion won in South Korea, the capital outflow is likely to have a limited impact on the South Korean stock market.”