KOSPI on course toward mild corrections in August
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Foreign ownership of Korean stocks falls to lowest level since August 2016
By Anna J. Park
The benchmark KOSPI is expected to continue undergoing corrections in August amid the spread of the Delta variant of COVID-19, market experts forecast Sunday. This prediction follows a sluggish performance in July driven by a foreign investors' selling spree.
The index closed at 3,202.32 Friday, the last trading day of the month, down about 100 points or 2.55 percent, from 3,296.68 at the end of June, and ending its eight-month long winning streak. This was the longest winning streak for the KOSPI in four years.
While solid exports and strong earnings by companies are buttressing the benchmark figures, the eight-month bullish run appears to be losing steam.
The increased spread of the Delta variant is seen as one of the main triggers of the correction, along with uncertainties over a regulatory crackdown on Chinese platform companies by Beijing.
Overseas investors have been reducing the number of “foreign shares” in their portfolios lately and Korean stocks were no exception. The percentage of local stocks held by foreign investors fell to 34.1 percent at the end of July, the lowest since August 2016 when it also reached around 34 percent.
The buying power of retail investors is also weakening. They net-purchased about 25.9 trillion won in local stocks in January, but this fell to 9 trillion won in July.
Due to such concerns, market analysts believe the KOSPI will be “stationary” this month, moving within a boxed range.
“The KOSPI has already factored in positive expectations about companies' future performances during the past several months. The main benchmark can expect an upturn if it gets momentum other than good corporate performances during the second quarter,” said Chung Yong-taek, head of research at IBK Securities.
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Against this backdrop, growth stocks based on strong profits are expected to have a more positive performance in August.
“Growth stocks are expected to take the lead in August's stock market, as the attractiveness of cyclical stocks has continued to fall,” Ha In-hwan, an analyst at KB Securities, said. “However, some sectors, such as secondary batteries and eco-friendly industries, as well as some bio and consumer stocks, will continue to be relevant,” the analyst added.
Growth stocks recommended
Kim Hak-gyun, the head of research at Shinyoung Securities, also stressed that growth stocks will hold more relevance in the current market, when economic growth momentum has slowed.
“As the economy is slowing down, the weight of the market will move to growth stocks for the time being,” he said.
Korea Investment & Securities forecasts the KOSPI to move between 3,140 and 3,340 points in August.
“The further spread of the Delta variant of COVID-19 is lowering expectations of an economic recovery, while uncertainties over monetary policies remain,” Kim Dae-jun, an analyst at Korea Investment & Securities, stated in his latest report. “Thus, it is now better to focus on each company's profit, rather than on macroeconomic indices, when it comes to investments,” the analyst added, recommending stocks in the IT, communications and health management sectors.
Samsung Securities also forecast the KOSPI to move between 3,100 and 3,350, with researcher Kim Yong-goo saying, “Solid corporate performances in exports and profits will buttress any further falls, while fears of stagflation will limit upper moves.”