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| Logos of Kakao and Naver |
Fed's expected rate hikes induce foreigners to sell growth stocks
By Anna J. Park
The prices of two major Korean Big Tech stocks, Naver and Kakao, have continued to falter over the past few months. This is in stark contrast to the stock prices of Big Tech firms in the U.S. that have increased into the double digits, fueled by the growing artificial intelligence sector.
According to the Korea Exchange (KRX), the stock price of Naver closed at 189,300 won ($145) on Monday, while Kakao ended the day at 51,000 won. When compared to two years ago during the pandemic when the two Big Tech firms were peaking with all-time-high stock prices, Naver has since lost over 55 percent of its market cap, and Kakao's market cap plunged by over 68 percent.
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Consequently, the market cap of Korea's two major IT powerhouses, which used to compete for the third-highest position among companies listed on the main benchmark KOSPI market, have fallen to 11th and 13th, respectively, as of Monday.
One of the key causes of their plummeting stock prices is a massive selling spree by foreign investors. In fact, they have been in a consecutive net-selling position on both Naver and Kakao since mid-June. In June alone, they net-sold 312 billion won worth of Naver stocks, and dumped 183 billion won worth of Kakao shares.
As a result, foreign investors' share of ownership fell to 47 percent for Naver and 25 percent for Kakao, which are the lowest levels when looking at the last couple of years. Just two years ago, foreign investors used to hold about 60 percent of Naver's shares and 35 percent of Kakao's.
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| Naver headquarters in Seongnam, Gyeonggi Province / Courtesy of Naver |
Market analysts view that the selling of shares regarding the big two has been accelerating lately because the U.S. Federal Reserve hinted at further interest rate rises during the second half of this year. Growth stocks experiencing a slowdown in earnings are particularly vulnerable to interest rate hikes.
"The recent correctional moves that focused on growth stocks are seen as foreign investors' attempts to shed increased burden amid concerns over additional interest rate hikes by the Fed expected during the second half of this year," Kim Young-hwan, a research analyst at NH Investment & Securities, told The Korea Times on Monday.
However, the analyst added that the impacts of such concerns should somewhat diminish after July's Federal Open Market Committee (FOMC) meeting.
"It is widely expected that the Fed will raise interest rates two more times ― one during July's FOMC meeting, and the other possibly during November or December's meeting. Given the timeline, downward pressures on growth stocks will be more or less decreased after July's meeting. Moreover, Big Techs' earnings releases for the second quarter will start from the third week of July. As the market's dominant view is that their earnings are likely to improve in the third quarter, it is expected that foreign investors' selling spree and associated volatility would somewhat be ameliorated," the analyst explained.
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| Kakao's Pangyo office in Seongnam, Gyeonggi Province / Courtesy of Kakao |
While foreign investors opted to net-sell the two Korean tech firms, they collected stocks related to semiconductors, secondary batteries and vehicles during the first half of this year. In contrast, retail investors chose to net-buy Naver and Kakao, as they think the stock prices have hit bottom. In June, Naver ranked the most purchased stock by individual investors, as they purchased 384 billion worth of shares. Kakao was the second-most-purchased stock in the previous month, as retail investors net-purchased 283 billion won worth of shares.
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