By Lee Hyo-sik
Staff Reporter
Foreign net buying of Korean stocks has increased to the highest level in six years, with international investors snapping up local shares on the back of the recovery from the global financial crisis and ample liquidity.
Additionally, the better-than-expected performance by listed firms and the won's strength against the dollar have also attracted larger portfolio investments from abroad.
According to the securities industry Sunday, foreign investors had net purchased shares listed on the main KOSPI market worth 6 trillion won in the first quarter of the year. Together with the 135.2 billion won worth of net buying of stocks listed on the tech-heavy Kosdaq market, non-Koreans' equity investments here have increased to 6.14 trillion won for the first three months of 2010, marking the largest since the first quarter of 2004 when it stood at 9.2 trillion won.
On the first two days of trading in April, international investors net bought 1.11 trillion won, pushing up this year's figure to 7.25 trillion won. In 2009, they net purchased local stocks worth over 37 trillion won, the largest since 2003 when foreigners brought 13.8 trillion won into the country to buy local shares.
Analysts here say that Seoul stocks have become more attractive on the stronger-than-expected performance by listed companies, which have expanded global market shares and boosted their bottom line over the past year, despite the worldwide economic downturn.
The easing of the international financial market turmoil and cheap credit around the world, have also boosted investor appetite for riskier assets, bringing the record amount of dollars onto the local bourse.
They expect foreigners to continue to snatch up local shares for the foreseeable future due to improving economic conditions and the strengthening of the won against the dollar and other currencies. In particular, the ``carry trade'' on the dollar and the yen has resumed as the U.S. and Japan continue to keep their key interest rates at an all-time low in a bid to facilitate the ongoing economic rebound.
``Through the carry-trades, foreigners brought money into the country to buy local stocks and bonds, enhancing the value of the local currency. They also expect to realize foreign exchange gains on the won's strengthening against the greenback,'' a Seoul analyst said.
Carry-trade refers to the investment strategy of borrowing money in countries with low interest rates and investing it in high-yielding currencies and assets elsewhere. It takes place when there is an interest rate gap between countries.
The analyst then projected that foreigners will invest more in local shares if the U.S. continues to maintain its monetary policy in an expansionary mode, adding the U.S. stock market is another crucial determinant on how long and how much money investors will bring onto the Seoul bourse.