Overseas selling spree of Korean stocks expected to hit all-time high this year

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By Anna J. Park

The amount of Korean stocks sold by overseas investors is likely to reach an all-time high this year, due to various reasons ranging from the strong dollar, global supply chain disruptions and lingering risks posed by China.

According to data compiled by the Financial Supervisory Service (FSS), overseas investors net-sold 31.8 trillion won ($27 billion) worth of Korean shares from January to October of this year. Given that the record for annual overseas net-selling of Korean stocks was 36.2 trillion won logged in 2008, this year could mark a fresh high if the selling spree continues this month and in December.

Net-selling by overseas investors so far this year already far exceeded all of last year's 24.6 trillion won total, on both the KOSPI and KOSDAQ markets.

Market watchers view that the net-selling of more than 58 trillion won worth of Korean stocks since last year could be attributed to a combination of factors.

“With the U.S. economy's solid performance during the pandemic, the country is absorbing global investors' liquidity as they increase direct investments into the country. This in turn appreciates the U.S. dollar, while weakening the Korean won's valuation,” Park Sang-hyun, chief economist at Hi Investment & Securities, told The Korea Times.

“The depreciation of the Korean won also reflects a weakened growth momentum compared to the U.S. dollar, considering the Korean economy's high susceptibility to external concerning factors, such as uncertainties from the Chinese economy,” the chief economist explained, adding that the resolution of the current global supply disruptions could also provide momentum for bullish movements of the local stock markets.

The Korean currency was valued at 1,182.60 won per dollar as of Thursday 3 p.m., up 0.31 percent from the previous session. The won has been generally weak against the dollar throughout this year, hitting this year's low of 1,082.5 in early January.

“The salient depreciation of the won against the dollar throughout this year has been one of the reasons behind overseas investors' net-selling of Korean stocks. The weakened won is ascribed to a fall in trade surplus and a strong dollar,” said Kim Joong-won, an analyst at Hyundai Motor Securities.

“Increased valuations of companies listed on the KOSPI also contributed to a selling spree by overseas investors. The selling is expected to be mitigated sometime around next year, when the burden of corporate valuations is lowered and the won-dollar exchange rate is more stabilized.”

As of the end of last month, overseas investors held around 742.2 trillion won worth of local listed stocks, which is about 27.8 percent of the entire market cap of the domestic stock markets.

By nationality, U.S. investors held about 301.5 trillion won, or 40.6 percent, of the stocks owned by overseas investors, followed by European investors with 233.1 trillion won, Asian investors with 95.9 trillion won and Middle Eastern investors with 25.7 trillion won.