A currency dealer monitors exchange rates in the trading room of KEB Hana Bank in Seoul, June 21, 2021.
Jung Young Jae | AFP (via Getty Images)
Foreign investors have sold billions of dollars worth of South Korean stocks this year, even as the Kospi has posted record gains year-to-date and emerged as one of the world’s standout performers so far.
On Monday, foreign investors sold a net worth of 1.24 trillion won (about $801 million) worth of Kospi-listed shares as of 11 a.m. Singapore time (11 p.m. Eastern time Sunday), according to data from the Korea Exchange.
“Foreign investors continued to sell off the Kospi market with capital outflows to Kospitech and automobiles.” goldman sachs The analysts wrote in a June 5 note:
of Kospi Shares were down more than 8% at the start of trading.
However, many investors and strategists say foreign selling has less to do with deteriorating fundamentals and more to do with the success of the market itself.
“This is essentially a forced sale seen by investors and customers,” Chetan Seth said. NomuraAsia Pacific Equity Strategist.
As South Korean stocks soar, their weight in global and emerging market benchmarks has increased sharply, forcing many active fund managers to cut positions to stay within portfolio and risk limits, investors told CNBC.
Selling pressure has been evident for several months. Goldman estimated that net outflows from the Kospi amounted to about $62 billion at the end of May.
“Structural pressure”
Nomura said the phenomenon mirrors what has happened in India in recent years, with a surge in participation in domestic retailers increasingly crowding out foreign investors.
“I think the same dynamics could play out in South Korea,” Seth added, noting that foreign investors may wait for a better entry point after a pullback.
Nick Wilcox, head of Asian equities at Man Group, echoed this view, noting that South Korea’s rapid rise in emerging market indexes was creating structural pressures on international investors.
Kospi index
He added that some investors are pushing back against restrictions on how much they can hold in individual companies after the stock prices of South Korea’s biggest companies soared.
“Much of the selling is forced selling as investors face active restrictions.”
However, the overseas selling was offset by a wave of domestic buying.
Wilcox pointed to an estimated $70 billion inflow of retail investors this year and a surge in brokerage account openings, saying “outflows from foreigners have been more than offset by domestic investors.”
The selloff also reflects growing concerns about risk concentration as South Korea’s rising stock prices make it more dependent on Samsung Electronics and SK Hynix.
However, despite the offload, market veterans maintained that the fundamentals of Korean stocks remain strong.
Nomura’s Seth said, “I don’t get the sense that investors are accepting that overseas investors have a negative view of South Korea, right? So…I think it’s mechanical right now.”
Similarly, Goldman Sachs remained bullish on Korean stocks, raising its 12-month Kospi target to 12,000 shares and predicting a further 37% rise in a note issued on Friday.
