Sign of foreigners' return to KOSPI?

By Lee Min-hyung

• Published Jul 31, 2020 4:42 PM KST
• Updated Aug 1, 2020 12:17 PM KST

Foreigners rushing to purchase Korean blue-chip stocks

By Lee Min-hyung

Foreign investors will continue driving bullish sentiment of the main bourse, in line with the weakening dollar against Korea's currency and the U.S. Fed's recent signal to extend a near-zero interest rate, analysts said Friday.

The analysis came as the KOSPI moves closer to this year's high of 2,277.23 on foreigners' strong buying spree of Korea's blue-chip stocks, such as Samsung Electronics and SK hynix. Aside from the semiconductor stocks traditionally favored by foreigners, buyers also scooped up other tech-driven large-cap stocks, such as POSCO and Naver.

Buyers purchased Samsung Electronics stocks worth 1.76 trillion won for five trading days until Thursday. SK hynix was the second-most-preferred stock for foreign investors who bought shares worth 117 billion won during the same period.

Market analysts said this would not end as a temporary phenomenon, and could be interpreted as a stable return to the local stock market despite lingering virus-related uncertainties.

“Foreigners are showing stable signs of returning to the local stock market, and the momentum will pick up more steam for the time being,” said Hwang Sei-woon, an economist at Hwang Korea Capital Market Institute.

“My view is that the KOSPI will not suffer any big crash in the latter half of this year, as foreigners will continue engaging in a mass buying spree of Korean stocks in consideration that a possible second wave of coronavirus infections will not cause any significant economic damage here,” he said.

The bullish run of the nation's blue-chip stocks is also due to depreciation of the U.S. dollar against the Korean won amid the Fed's strong monetary easing, according to the economist.

The downward pressure on the dollar would continue to attract more foreign capital into Korean stock markets, he predicted.

“Riding on the currency flow and diminishing fears of COVID-19, the benchmark index will maintain its upward trajectory until the end of this year,” he said.

He said the risk factor surrounding the coronavirus would keep declining on hopes for development of vaccines and treatment, and the economy would jump on a recovery track, which also bodes well for KOSPI's growth.

SK Securities analyst Han Dae-hoon agreed that the external currency-related environment would establish a favorable environment for large-cap stocks' bullish run.

“The Fed recently reaffirmed its position to maintain its current low-interest-rate stance until the U.S. economy normalizes, and this is a positive sign for the Korean stock market,” he said.

“The Fed's decision will put upward pressure on the Korean currency, and the recent extension of the currency swap deal by six months between Korea and the U.S. will likely strengthen the won against the dollar, just like it did when both sides clinched the deal in March.”

On top of the trend of the won-dollar exchange, he said the chip market would determine the course of the local stock market.

“We maintain our outlook that large-cap cyclical stocks ― such as semiconductors, electronics and transport equipment ― are attractive enough for investment in the short run,” he said.

The subsiding signs of the coronavirus also added to optimism for cyclical stocks, he said.

“Lesser fear of COVID-19 raises hopes for resumption in economic activities, which bodes well for cyclical stocks,” he said.

Until recently, individual investors played a crucial part in driving the KOSPI, with foreigners leaving the Korean market on fears of the coronavirus.

But with foreigners returning to the local stock market, individuals went on a selling spree of Korean stocks. They sold 1 trillion won worth of stocks for four trading days until Thursday, during which period foreigners have shown signs of returning to the local market.