By Kim Tae-gyu
Staff Reporter

Foreign investors started picking up Korean stocks Wednesday to post a net buying for the first time in 11 trading sessions since Oct. 14.

They bought 14.65 billion won worth of stocks on the main bourse, causing a market rally in the morning session. However, the benchmark KOSPI eventually dropped 3 percent.

The question is when will foreigners come back in a full-fledged manner to the Korean market where sellers have overwhelmed buyers in the midst of the global financial storm.

Most experts are reluctant to conclude that foreigners will continue to snap up stocks in the short term but they are optimistic over the long haul.

``First of all, the selling spree of foreigners shows signs of subsiding. They appear to know that the domestic stocks are too undervalued,'' Samsung Securities analyst Kim Seong-bong said.

``However, that will not make foreigners stage a buying binge immediately due to the many uncertainties. The real comeback of foreign forces could take place next year at the earliest if the financial crisis eases,'' Kim said.

Overseas Forces

Ever since Korea opened the stock market to outside investors in 1992, overseas forces have played a pivotal role in the movement of the stock market.

Their presence helped boost stock indexes overall as the offshore holdings list, which the Korea Exchange started compiling back in 2001, have been on the rise here.

As of the end of October in each year, the portion rose from 35.56 percent in 2001 to 40.13 percent in 2003 and 42.51 percent in 2004 before dipping to 37.51 percent in 2006 and 32.49 percent last year.

However, the figure fell below 30 percent in early September before climbing back to the 30-percent level this week on brisk activities by offshore players.

In addition, the overseas ownership is still higher than the average of members of the Organizations for Economic Cooperation and Development (OECD), which reaches about 25 percent.

The hitch was high volatility as they have been quick to dispose of stocks when the economy faced a downturn as demonstrated during the Asian financial crisis in 1997-1998 and the IT bubble burst in 2001.

When the economy was on the recovery path, deep-pocketed foreign players helped equity prices overshoot through gobbling up undervalued stocks, thus increasing volatility.

Analysts have also put their fingers on overseas investors this time around as the main culprit behind the recent plunge in stock prices.

The KOSPI has almost halved in value over the past year to a three-year low and the tech-heavy Kosdaq is struggling to come out of a record low performance.

Overseas investors have dumped Korean equities over the stock market crash ― they sold off a net 41.76 trillion won this year and almost five trillion won for this month alone.

Deep Liquidity

Everything has both upsides and downsides. And that seems to be the case for Korean stock prices, where new buyers constantly sprang up.

Thanks to the buyers, overseas investors have been able to avoid selling stocks at knockdown prices unlike other Asian countries such as China or Indonesia where stock prices have plummeted more than 60 percent this year.

``Foreigners could dispose of our stocks as there have been those who are ready to buy them ― institutions and individual investors. This provided liquidity,'' Mirae Asset analyst Kim Kyung-mo said.

``When foreigners come back, they will appreciate this liquidity. This means when the economy recovers, stock prices may rebound very fast thanks to foreign investors' belief in our liquidity,'' he said.

Kim Young-jun, an economist at SK Securities, concurs.

``Maybe the crash of the stock market is a blessing in disguise as it proved how liquid the local market is. Now nobody seems to think about it but it will matter when things get better,'' Kim said.

voc200@koreatimes.co.kr