Investors flocked to equity funds as Kospi went south

Local investors have been streaming to snap up equity funds and betting on the recovery of Seoul’s main bourse, which has been shaken and stirred by renewed instability in Europe.

After sharp losses late last week triggered by fears of Greece leaving the euro zone and Spanish and Italian banks’ credit ratings being downgraded, the Kospi clawed back 16 points yesterday to close at 1799.13.

Yet even while foreign investors pulled out en masse last week, healthy amounts of capital were still being injected into local equity funds.

While the Kospi slumped 4 percent last week, the stock market got a 100 billion won ($85.5 million) injection each day due to the irresistible pull of equity funds, according to the Korea Financial Investment Association.

By the end of last week, over 620 billion won had poured into local equity funds this month, it said. This marks a significant boost from the first three months of the year, when investors spent a total of 5.8 trillion won on such funds.

Investors have pounced to buy what they see as undervalued shares after the index hit a downturn.

“As the Kospi continued to plummet last week, investors have been requesting subscriptions for equity funds, including equity linked securities (ELS), even though we have reached our sales limit,” said a brokerage firm employee in Seoul.

“Investors think that even if the market keeps falling, it has already almost bottomed out, so the value of the stocks will rebound soon.”

In contrast, overseas equity funds withdrew almost 12 billion won from the local stock market last week.

Similar trends are cropping up elsewhere as investors apparently batten down the hatches in preparation for another major liquidity crunch.

“Equity funds are withdrawing rapidly from emerging markets worldwide,” said Lee Sang-won, an analyst at Hyundai Securities. “In Korea, the trend is pronounced in the field of semiconductors, where investment is shrinking rapidly.”

This is happening whether a country’s economic fundamentals are strong or weak, he added.

By Lee Ho-jeong [ojlee82@joongang.co.kr]