Kospi looks to foreigners’ return

Are foreign investors returning to stock up on Korean stocks again?

Some market watchers are anticipating a comeback of the so-called “Buy Korea” trend because foreign investors are buying instead of ditching Korean stocks.

Their attitude was improved after European Central Bank (ECB) Chief Mario Draghi pledged over the weekend to “do whatever is necessary” to protect the euro, along with political support from leaders of Germany, Spain and Italy.

The benchmark Kospi took a breather from its fourth day of rallying and closed at 1,879.93 yesterday, a slight decline of 2.06 points from the previous day’s close. While some investors turned to a wait-and-see mood before a meeting of the U.S. Federal Reserve policy makers’ Federal Open Market Committee, foreign investors scooped up a net 466 billion won ($ 413 million) worth of local shares, pushing the buying streak into a fourth consecutive session.

The Kospi was on an upward trend for four trading days through Tuesday after it had the lowest close in seven months last Wednesday at 1,769.31.

Foreign investors unloaded Korean stocks on the news that Spain’s 10-year government bond climbed to a new high of 7.6 percent.

Overall investor sentiment including foreign investors, however, was gradually boosted by expectations that Europe and U.S. financial policy makers will hammer out stimulus measures given that Federal Reserve policy makers in Washington met for a two-day meeting yesterday while the ECB governing council will meet today.

Analysts at securities firms think foreign investors may continue snapping up Korean stocks but that depends on the direction and depth of U.S. and Europe’s stimulus measures.

“Foreign investors are expected to continue buying rallies this month,” said Park Jung-seop, an analyst at Daishin Securities.

“The Kospi is estimated to go up as euro zone’s stimulus measures spread a sense of relief among investors. It is highly likely that the major driving force of Kospi’s net buying will come out of European funds just like we witnessed in January and February.”

Strong Asian currencies are also attracting foreign investors to the Kospi, Park said.

“Since [Friday], foreign investors’ net purchases are happening on stock markets in Korea, India, Indonesia, Taiwan and Thailand,” he said.

“Inflowing funds into Asian stocks simultaneously signal [that] foreign investors are betting on Asian stocks’ bullish rally.”

Others suggested the Kospi may near the 2,000 mark within this year.

“The Kospi slipped slightly due to the deepening euro zone debt crisis and the negative impact of companies’ poor Q2 earnings and the slowing economy,” said Kwak Jung-bo, an analyst at Samsung Securities.

“But on the condition that world leaders map out stimulus packages to rescue the euro zone, the Kospi may reach 1,950 points.”

By Kim Mi-ju [mijukim@joongang.co.kr]