A money dealer monitors currency exchange rates in a trading room at KEB Hana Bank in Seoul on June 21, 2021.
JUNG YEON-JE | AFP via Getty Images
Foreign investors have dumped billions of dollars worth of South Korean stocks this year, even as Kospi has emerged as one of the world’s biggest players to date, with record profits for the year to date.
On Monday, overseas investors pulled a total of 1.24 trillion won (about $801 million) from Kospi-listed stocks as of 11am Singapore time (11pm ET Sunday), according to Korea Exchange data.
“Foreign investors continued to sell the Kospi market, driven by the exit of Kospi Tech and Auto,” Goldman Sachs analysts wrote in a June 5 note.
I Kospi down more than 8% in the open.
However, many investors and strategists say that foreign sales have less to do with deteriorating fundamentals and more to do with market success.
“This forces us to sell what we see to investors and our customers,” said Chetan Seth. NomuraAsia-Pacific equity strategist.
As Korean stocks rose, their weightings in global and emerging market benchmarks grew significantly, forcing many active fund managers to reduce positions to stay within portfolio and risk limits, investors told CNBC.
The sales pressure has been evident for months. Goldman estimated that Kospi’s net outflows had reached about $62 billion by the end of May.
‘Structural pressures’
This situation reflects what happened in India in recent years, according to Nomura, where the increase in the role of domestic stores has put more pressure on foreign investors.
“I think the same dynamic may play out in Korea,” Seth said, noting that foreign investors may be waiting for better entry points after the pullback.
Nick Wilcox, head of Asian equities at Man Group, echoed that sentiment, noting that Korea’s rapid rise to emerging markets has created structural pressure on international investors.
Kospi index
He added that some investors are also opposed to regulatory restrictions on how much they can own in individual companies after the rise of major Korean stocks.
“A lot of sales are being forced to sell because investors are coming up against effective limits.”
Yet exports are more than offset by a wave of domestic purchases.
“Foreign outflows are more than domestic investors have made,” Wilcox said, pointing to an estimated $70 billion in inflows this year and a significant increase in the opening of merchant accounts.
The sale also reflects growing concern about risk concentration, as the Korean assembly has become more dependent on Samsung Electronics and SK Hynix.
However, despite the loading, market veterans maintained that the fundamentals of Korean equities remained strong.
“I don’t get the idea that investors are taking foreign investors are taking a negative view of Korea, right? So … I think it’s a machine right now,” said Nomura’s Seth.
Similarly, Goldman Sachs remained bullish on Korean shares, raising its 12-month target for the Kospi to 12,000 and predicting another 37% rise in a note published on Friday.
