Foreigners off-load stocks as won risesForeign investors became net sellers of local shares this month as they chased profits amid an appreciation of the local currency against the greenback, data showed yesterday.
Overseas investors dumped a net 1.2 trillion won ($1.1 billion) worth of local shares this month through Friday, ending their third consecutive month of net buying in September, according to the Financial Supervisory Service.
Foreign investors were net buyers of local stocks in July and August, purchasing 549 billion won and 5.4 trillion won worth of local shares respectively, the data showed. Last month, overseas investors also scooped up a net 3.4 trillion won.
Their buying streak came as economic stimulus measures taken by advanced countries helped pump more liquidity into the local stock market, analysts said.
In September, the European Central Bank announced an unlimited government debt purchasing plan, while the U.S. Federal Reserve pledged to inject $40 billion monthly to purchase mortgage-backed securities to revitalize the economy.
However, due to the protracted appreciation of the Korean won against the U.S. dollar, overseas investors pulled out their money from the local bourse on expectations that they would not benefit from the rising won, market watchers said.
The local currency ended at 1,095.80 won against the greenback on Monday, continuing its gaining streak to a 13-month high.
“Lingering concerns over whether the U.S. will face a fiscal cliff and its upcoming presidential election also fueled investors’ appetites for safer assets,” said Park Yuna, a researcher at Dongbu Securities.
Meanwhile, foreign investors were net buyers of local bonds through Friday this month, purchasing a net 2.6 trillion won, industry data showed.
However, local analysts said that given the appreciation of the local currency, foreigners are likely to withdraw part of their bond investments from the country.
“As a large share of overseas investments in local bonds is speculative, foreign investors may conceivably pull out their money,” said Kong Dong-rak, a fixed-income analyst at Taurus Investment & Securities.
The gloomy outlook on the fundamentals of Asia’s fourth-largest economy also had an adverse impact on the foreign investments in the local financial market, as a stronger won can dampen exports. A stronger won inflicts foreign exchange losses on exporters, making Korean goods more expensive overseas, which damages earnings.
Financial authorities should take measures to prevent an “exodus” of foreign capital, market watchers said.