Kospi rides high on net buying
The country’s main bourse is benefiting from a wave of investors withdrawing their investments from advanced economies, especially from Europe, after the British voted in June to leave the European Union.
According to the Financial Supervisory Service, foreign investors in July alone purchased 4.1 trillion won ($3.7 billion) in Korean stocks. The local market also got a boost last week after Standard & Poor’s raised Korea’s credit rating from AA- to AA.
The Kospi has been hitting a new year-high every day for the last five trading days, ending on Friday at 2,050.47. During this period, accumulated net purchases by foreign investors amounted to 641.5 billion won. This is a slight increase from the first week of this month, when it totaled 561.4 billion won.
Market observers expect the Kospi to continue improving.
“Although we will have to continue to closely watch the influence of interest rates and foreign exchange rates, we expect a huge inflow of foreign investment since the Korean government’s credit rating has been raised to the highest level among emerging markets,” said Shin Hwan-jong, head of NH Investment and Securities’ global credit team.
Ryu Yong-seok, a researcher at Hyundai Securities, said the Kospi could potentially see additional increases, considering global interest rate movements and favorable performances by Korean companies in the second quarter.
“The Kospi is showing some adjustment to its pace [of increase] after reaching its highest points in a short period,” said Kim Sung-hwan, an analyst at Bookook Securities. “After taking a temporary breather, it will likely see additional increases due to foreign investors’ stock purchases.”
Experts say investors need to closely monitor shares of companies with main businesses targeted at the domestic market, since their shares are currently undervalued and therefore likely to see additional growth.
“The market will likely move mostly centered on domestic market-targeted stocks that have been suffering a decline in the past, such as food and beverages, cosmetics, biopharmaceuticals and fashion,” said Kim Yong-gu, an analyst at Hana Financial Investment.
In particular, the value of cosmetics shares has fallen ever since the Korean government decided early last month to deploy the U.S.-led Terminal High Altitude Area Defense antimissile system, a decision that has rankled China, Korea’s largest export destination and source of tourism.
“Currently, the Korean won depreciation [against the U.S. dollar] will help domestic market-based stocks recover the earlier falls,” said Kim of Hana Financial Investment.
The depreciation of the won against the U.S. dollar could negatively affect export-oriented companies, making domestic market-focused stocks attractive. Experts say one of type of stock that investors should take notice of is financial shares, including banking and insurance companies.
Financial shares have been on the rise recently thanks to their favorable second-quarter performance. Their corporate credit ratings are likely to go up, especially after the recent raise in Korea’s credit rating by S&P.
“Within the recent limited movement of the Kospi, there has been some movement where investors have been offloading their shares [to profit from the recent upswing of the Kospi] in certain areas,” said Kim Byung-yeon, an analyst at NH Investment and Securities. “However, shares sensitive to economic performance like in information technology, banking and industrial materials will likely continue to go up.”
Some market observers, though, caution against placing too much meaning in the recent uptick in net purchasing by foreign investors and Korea’s credit rating upgrade.
“The improvement in the country’s credit rating could act favorably on the stock market for a short period by raising the country’s overseas credibility,” said Byun Joon-ho, an analyst at HMC Investment and Securities. “However, it cannot guarantee that it will continue to help the bullish rally of the stock market.”
The possibility of the U.S. Federal Reserve raising its interest rates later this year could have an additional negative impact on the Korean stock market.
“If the U.S. interest rate hike issue resurfaces, foreign investors’ stock purchases will weaken, and this will likely temper the upward momentum in the short run,” said Kim Ye-eun at LIG Investment and Securities.
BY SHIM SAE-ROM [lee.hojeong@joongang.co.kr]
with the Korea JoongAng Daily
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