By Cho Jin-seo
The continuous inflow of foreign capital is leading the equity rally in Korea, pushing the KOSPI close to 1,900.
Improving corporate performance and expectations for a stronger currency are the Korean stock market’s major attractions to overseas investors, analysts said Sunday.
According to the Korea Exchange (KRX), foreigners net bought 12.3 trillion worth of shares on the KOSPI and Kosdaq markets up to September this year ― the third largest volume of net buying for the first three quarters of the year, after 2003 and 2009.
In September especially, foreign investors purchased 4.3 trillion won worth of shares. In only three days of the month did they sell more shares than they bought. As a result, the KOSPI climbed 117 points in September, closing at 1,876.73.
The U.S. economy was one reason for the sunny September, said Kim Jung-hoon of Korea Investment & Securities.
“The KOSPI showed a strong upward momentum because of expectations on quantitative easing in the United States,” he said in a report released Friday. “This expectation has led to a weak dollar and a rally in financial assets in emerging economies. As for Korea, the currency, equity, and bonds all showed strong movement.”
The Korean won finished trading at 1,126 won per dollar on Friday, the lowest rate since May. But economists say a further drop in the rate is likely by next year, which means that foreigners investing in won-denominated assets can expect profits from the won’s appreciation.
“It is a liquidity rally by foreigners, on top of improving fundamentals of Korean firms and the Korean economy,” said a report from Shinyoung Securities. “Especially, there is the strong expectation in the market of the appreciation of the Chinese yuan and the Korean won. To foreign investors, this is a big attraction.”
Beside foreign investors, the pension fund was another force in this year’s equity rally, net buying 6.7 trillion won worth of shares. Jun Kwang-woo, the chairman of the 300-trillion-won National Pension Service, said last month that he aims to double its domestic equity portfolio over the next few years, in order to own around 10 percent of shares in major KOSPI companies.
On the contrary, Korean financial firms and individual investors were less confident in the bull market, net-selling their assets throughout the year.
Upbeat analysts see the KOSPI going past the 1,900 level in October ― the last time this happened was December 2007. Thereafter it fell to 938 in October 2008.
Kim of Korea Investment & Securities says that the rise can continue until mid-October for three reasons ― monetary expansion in China, the U.S. election, and record-high earnings from Korean firms.
In the United States, the Republican Party is expected to win the Nov. 2 senate elections, which often translates into good news in the financial market at least for a short term, the report says. KOSPI-listed firms are also expected to see a 22 percent jump in net profit in their third quarter results, he added.
This week will see whether the corporate performance can boost equities even further. Samsung Electronics, the largest firm on the bourse, will announce its third quarter earnings guidance before Friday, which will be a barometer for corporate Korea’s most recent performance.
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