Foreigners expected to dump stocks worth W2.4 tril.
By Kim Da-ye
Korean shares have been falling at such a dramatic rate that the market doesn’t know when it will stop. Between Aug. 2 and 8 shares lost 302.86 points or 13.94 percent, prompting the main Seoul bourse to take an emergency break on Monday and the KOSDAQ market to halt trading for twenty minutes due to the steep dramatic plunge.
Foreign investors have led the losing streak, and a series of interviews with the country’s top analysts indicate that foreigners will keep selling Korean securities, at least for the time being.
“They sold shares worth 2.1 trillion won in less than 5 days. The net-selling will continue for a while due to Standard & Poor’s downgrade of the U.S. credit rating and because government bonds issued by Spain and Italy are about to mature,” Oh Sung-jin, the research center chief of Hyundai Securities said.
Based on the size of the biggest sell-off by foreigners this year, Oh said that they could sell additional stocks worth 2.4 trillion won.
The volatility in the Korean stock market has some positive aspects ― foreigners do not dislike the Seoul bourse, so the sell-off won’t carry on for the long term.
“Let’s not put a headline saying ‘Sell Korea.’ Foreigners hold stocks worth about 400 trillion won. Selling 3-to-4-trillion-won worth of shares doesn’t mean that foreigners are leaving Korea,” Daewoo Securities Analyst Lee Seung-woo said.
As of the end of June, foreign investors held Korean stocks worth 380.9 trillion won which represents 32.2 percent of the market cap.
Samsung Securities’ equity strategist Oh Hyun-suk said that mostly European investors are withdrawing from Korea because they need to liquidize assets to deal with their own problems.
“Foreigners aren’t withdrawing their investment because the Korean market is overvalued or in bad shape. Investors now prefer safer assets, and European financial institutions in particular aren’t trading much among themselves and rather deleveraging. They now have to liquidize their foreign assets,” Oh said.
Some market observers are concerned that the Korean market shed too much compared to its emerging counterparts. Analysts said that it is only natural.
“Because much capital has flown into the market, much is flowing out,” the Samsung Securities strategist said.
The benchmark KOSPI lost some 10 percent this year, starting at 2,070.08 on Jan. 3 and closing at 1,869.45 Monday. Because the shares had already gone up a long way, investors want to sell them right now at a profit before they dip further, analysts said.
In response to the question, when will foreigners come back to the market? The Hyundai Securities research center chief said that a large volume of Italian government bonds are set to mature in September, and investors are likely to make a move after they see how the debts were paid back.
Oh added that the recent fall was triggered by the worse-than-expected U.S. manufacturing index published by the Institute for Supply Management (ISM), so the recovery of the index could help.
The ISM manufacturing index came out on Aug. 2 at 50.9 for July ― down from 55.3 a month earlier ― while the service-sector index dropped from 53.3 percent to 52.7 percent, disappointing the economy.
Analysts were cautious in forecasting the bottom for the KOSPI as it unexpectedly plunged below the 1,900 mark Monday.
Hyundai Securities’ Oh said that the lowest point will be in the 1800s range, and this week will be the worst of the third quarter while various brokerages estimate it at 1,900 points under circumstances that there will be no further unfavorable factors appearing in the market.
What would be the best investment strategy in these difficult times?
Samsung Securities’ Oh said that there aren’t any appropriate strategies for now.
“If you are sick of the market, you sell and leave. If you think you’d rather stay in the market, stay still,” Oh said.
“There isn’t any action plan on a daily basis. The more you move, the more you are likely to lose. Buying securities, selling at a loss and spending on fees only incur costs. If you aren’t ready to liquidize your assets, wait and see.”
Kim Sung-no, KB Investment & Securities’ strategist also known as Korea’s Dr. Doom, had been a rare voice speaking of concerns over bubbles in the Korean stock market. But at its dramatic downturn, the Korean Dr. Doom sounded more positive than in the past.
In his Monday report, Kim recommended increasing the portion of equities in the investment portfolio when the KOSPI stays around 1,900 points.
“In the worst case of a double dip in the global economy, the KOSPI could plunge to as low as 1,550. But the concerns over the double dip are too much,” Kim said.
The strategist said that the U.S. economic indices came out poorly because expensive commodities caused inflation, constricting consumption. The recent fall in commodity prices will eventually boost consumption, and the global economy isn’t likely to suffer a double dip, he said.