&#91NOTEBOOK&#93Korea’s image: In, out quickly

The South Korean economy is looking pretty bleak, but one sector is turning active these days ― the stock market. Stock prices have been rising, even during the traditionally slow runup to the holiday season.
We have seen a string of yearly high marks in the market; prices are not advancing by leaps and bounds, but in a consistent series of small steps. Market experts say that latter trend is a sign of stability ― stock prices that soar can plummet easily, but slow steady rises carry a lesser risk of another slump.
For individual investors who have been depressed along with their portfolio, that is a long-unheard kind of good news. The government, anxious to stimulate the economy, also seems relieved at the recent stock market movements.
The leading role in this rising market is definitely foreign investors. While domestic institutional investors and individual investors were sitting on the fence, foreign investors voraciously bought stocks of Korean companies.
In the Korean stock market, the ratio of foreign investment is nearly 40 percent, the highest level in history. The Korean stock market without foreign investors is by now hard to imagine.
The reason the foreigners are buying Korean stocks is simple. They expect that the stocks will rise further in value in the future. Foreign investors who handle a huge sums internationally are not likely to have spent a large sum of money on Korean stocks if they feared losses. They have judged that Korean stocks are worth investing in after doing their own analysis.
Stocks are bought on the basis of future expectations; foreign investors must see a bright future for Korean companies.
But let’s look at another kind of foreign investors. Nestle, a world-famous food company, closed its workplaces during a tedious labor-management dispute, and says it is considering withdrawing its investment entirely. Foreign companies already here are trying to leave, so it seems implausible that there are many other companies interested in entering. Those thinking about withdrawing say they intend to go to China, where concerns about labor-management disputes do not exist and where labor costs are lower. There is no way to stop them.
The Korean government, in its urgency, even said that if companies would invest in Korea the government would return some of the invested amount in cash, but the measure would not seem sufficient to rekindle the interest of foreign direct investors who have lost their interest once.
This is all quite confusing. Who are the foreign investors coming in because they think the Korean stock market will be profitable, and who are the investors putting on their hats and leaving because they cannot do business in Korea? One of the two groups may be viewing things wrongly; but it is hard to know whether the prospects for the Korean economy are good or bad.
The differing investment attitudes of foreigners result from the differing characteristics of their investments. The bullish group is people who invest in securities. Although they buy ownership shares of companies, they do not intend to take over and run the company. Their objective is to make a profit by selling stocks when the prices rise. In most cases, these investors do not personally come to Korea, and only money goes in and out.
But the direct investors want to come into Korea and do business themselves here. They want to build factories on Korean land and hire Korean workers and produce things and sell them. They have to consider a great number of things before they come, not just whether a company’s shares will rise or fall. The characteristics of their investments are much different than those of stock investors, who can sell out and leave at a moment’s notice.
Let’s summarize this. Foreign investors who are looking for short-term profits are flocking to Korea, while foreigners who want to settle in here for the long run and do business with Koreans are turning their backs. Foreigners can trade Korean stocks by long-distance, but they feel uneasy and disinclined to come here and do business. That is the sentiment, the foreign perception, of the Korean economy today.

* The writer is business news editor of the JoongAng Ilbo.

by Kim Jong-soo