Foreign Funds Go on Sell Korea
By Lee Hyo-sik
Staff Reporter
Many foreign investment banks, asset managers and sovereign wealth funds are moving out of the Korean stock market amid the worsening global credit crunch.
These investors tend to hold blue chip stocks for a longer period of time, contributing to the creation of a long-term investment trend among equity investors here. But their exit has testified to deteriorating investor sentiment, weighed down by slumping corporate performance, falling domestic demand and sluggish exports.
According to the Financial Supervisory Service (FSS) Sunday, non-Korean investment banks, sovereign wealth funds and asset management firms have filed 107 public notices with the regulator since October that they have sold stakes in domestic companies.
``Foreign banks and asset managers have sold shares here in recent months to increase their cash holdings to cope with the tight global credit conditions. In particular, they are dumping shares of domestic banks, brokerage firms and insurers, which have been hit hard by the worldwide financial market turmoil,'' Daishin Securities analyst Sung Jin-kyoung said.
U.S.-based asset manager Capital Research and Management Company has cut its stake in Pusan Bank to 8.76 percent from 11.41 percent, and its shares in Daegu Bank have dropped to 6.89 percent from 10.08 percent. JF Asset Management, affiliated with JPMorgan, has also dumped its stakes in financial firms, pushing down its ownership in Hana Financial Group to 3.63 percent from 6.46 percent.
Not only financial service companies, but also construction firms have seen stakes held by foreigners decrease significantly over the past few months.
Australian investment bank Macquarie, which runs the world's largest infrastructure development fund, has cut its holdings in Sungee Construction to 2.8 percent from an earlier 7.8 percent, with a number of other foreign investors reducing their exposure to local builders.
``Foreign investors are dumping shares of domestic construction firms grappling with a liquidity shortage and unsold apartments amid the slumping real estate market. Investor sentiment toward builders will likely further deteriorate as a number of construction firms are rumored to be about to go belly up under mounting debts,'' Sung said.
Tourism companies have also been hit hard by the foreign sell offs as their business has worsened as fewer Koreans head overseas on the won's depreciation against the dollar. The Government of Singapore Investment Corp. (GIC) has reduced its stake in Korea's largest Hana Tour to 5.13 percent from 6.24 percent.
Meanwhile, local securities firms posted a poor performance in the first half of the year on the bearish domestic stock market.
The FSS said the combined operating income of the 10 largest brokerage firms here totaled 572 billion won from April to September, down 66 percent from 1.7 trillion won over the same period last year. Their net profits also fell 64 percent to 467 billion won.
Securities companies have begun downsizing payrolls and reducing the number of their branches in order to stay afloat. Tongyang Securities, which operates 166 branches across the country, has closed two branches in Seoul to reduce costs and cope with the ongoing business slump. Other brokers are widely expected to follow suit.