Coming Back

 

Foreign investors are returning to the Korean stock market on the expectations of the new economic policy of Deputy Prime Minister Choi Kyung-hwan, recovery of the Chinese economy, positive corporate performance forecasts, and abundant global liquidity. The stock index is expected to continue its upward trend until the third quarter of this year.

According to the Korea Exchange, foreign investors recorded net purchases of 2.5845 trillion won (US$2.5197 billion) this month alone, including 174 billion won (US$169 million) on July 28. The monthly amount was 1.1223 trillion won (US$1.0944 billion) last month and that for July is expected to exceed this year’s high, recorded in April, of 2.8018 trillion won (US$2.7321 billion). Between January and July 28, the net purchases amounted to 4.9478 trillion won (US$4.8228 billion), whereas the yearly total for 2013 was 3.4111 trillion won (US$3.3263 billion). The ratio of foreign investment hit a new high, too. The total market capitalization owned by foreign investors reached 432.65 trillion won (35.30 percent) on that day. The previous high had been 431.8 trillion won (US$420.9 billion), posted on October 30 last year.

The investors are focusing their investment on those companies with positive outlooks or expected to benefit from government policy. For instance, they bought 2.571 trillion won (US$2.507 billion) in shares of Samsung Electronics this year along with those of LG Electronics (677.6 billion won, US$660.8 million) and LG Display (463.7 billion won, US$452.2 million), both of which are enjoying the strong sales of the LG G3 smartphone now. Banking stocks such as Hana Financial Holdings (620.3 billion won, US$604.9 million) and Shinhan Financial Holdings (358.2 billion won, US$349.3 million) were also preferred thanks to the government’s stimulation policy, and Kia Motors (418.8 billion won, US$408.4 million) joined the list as well, which is forecast to show a turnaround in the second half.

The fund inflow is likely to continue in the third quarter, owing to the policy momentum and the return of global funds to emerging economies. In addition, the other emerging stock markets such as India, Taiwan, and Indonesia have gained a lot so far, which means that the Korean stock market has enough room to go up. The Korean bourse is distinguishing itself this month in particular. According to KDB Daewoo Securities, a total of US$2.362 billion flowed into the Korean market this year, while the amounts were US$2.196 billion for India, US$1.124 billion for Indonesia, and US$746 million for Taiwan. In the first half, there was US$9.917 billion for India, US$3.836 billion for Indonesia, US$9.419 billion for Taiwan, and US$2.295 billion for Korea.

“The Korean government’s economic stimulus policy appears to have a greater impact than expected,” said Jung Chang-won, director of the Korea Research Center of Nomura Financial Investment, adding, “Also, policy measures relating to dividends that can directly influence stock investment are coming out to add to the positive effect.” He continued, “Many investors estimate that the KOSPI can reach 3,000 points once the dividend payout ratio goes up to 50 percent or so, and foreigners have begun to make long-term investments on such expectations.”

IBK Investment and Securities Research Center head Lee Seung-woo echoed the sentiment by saying, “Anticipation for an interest rate cut, which is seen in few other emerging markets, will allow more and more funds to flow into Korea down the road, and the KOSPI will be able to keep rising upward, as detailed measures of the new economic policy are made available in the future.”

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