By Yoon Ja-young
Staff Reporter
Foreign investors are deserting the stock market. Their stake in the total market cap fell below 30 percent for the first time since 2001, but there seem to be few attractions to lure them back. Their withdrawal, however, could be a chance for local funds to increase influence.
According to the Korea Exchange, the country's stock market operator, foreigners held 29.89 percent stocks in the Seoul bourse as of Monday, the first fall below 30 percent since 2001 when KRX started compiling such data.
The ratio of foreign investors, which recorded 30.47 percent in 2001, continued expanding until April 2004 when it peaked at 44.12 percent. It drew a falling curve since then, however, marking 32.39 percent around the end of last year.
The fall below 30 percent came after foreign investors recorded net selling from the Seoul stock market for 33 straight trading days from June 9 to July 23. Foreigners sold near 22.4 trillion won worth of stocks from the main bourse so far this year on the liquidity crunch following the U.S. subprime mortgage woes last year.
Global funds, which are decreasing equities in their portfolio, are especially withdrawing from emerging markets as the global capital market turned from bad to worse upon liquidity problems started in the United States. Analysts point out that the Korean market, backed up by relatively abundant liquidity, is where foreign investors can easily sell stocks. They have also reaped good investment return during the last few years, which make it the right time to get out of Korea.
The worsening economy, which is highly dependent on oil imports, is also adding to the pessimistic outlook on Korean equities. The Seoul bourse is losing its attraction for foreigners, as the equities' average price earnings ratio (PER) stands at 10, a little undervalued compared with other stock markets in both developed countries and emerging countries.
Some analysts estimate that the ratio of foreigners could fall to around 25 percent, citing that foreigners take on average 27 percent of the emerging markets.
The falling stake by foreigners, however, means institutional investors will have more influence in the market. Local equity funds saw over 8 trillion won inflow this year, and the funds grew to 83 trillion won.
The National Pension Fund also said it would pull up the ratio of equity investment to over 40 percent of its portfolio by 2012.