Vanguard ends dumping stocks

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Vanguard ends dumping stocks

Vanguard Group’s plan to sell off its 9.4 trillion won ($8.2 billion) in Korean stocks wrapped up earlier than expected and market watchers expect foreign investors’ sell-offs of Korean stocks to ease.

According to industry insiders, the American company announced it had “transitioned to new benchmarks for 22 index funds” as of June 27.

The world’s second-largest asset management company announced in October it would change the benchmark used to measure performance of its emerging-markets stock index funds to the Financial Times Stock Exchange (FTSE) from the Morgan Stanley Capital International (MSCI) this year.

The FTSE Emerging Index classifies Korea as a developed market and fund managers of Vanguard’s emerging stock index funds had to sell their holdings of Korean stocks to comply with the FTSE’s classification.

They had planned to do it over 25 weeks and finish by yesterday.

Vanguard began dumping its Korean shares on Jan. 10 and this drew concerns among analysts that there would be a huge outflow of foreign funds.

“According to the Korea Exchange, foreign investors have sold off a net 10.2 trillion won of Korean shares in the January to June period and this is the biggest dump by foreign investors since 2008, when they sold a net 17.6 trillion won,” said an industry insider. “This means foreign investors unrelated to Vanguard Group have sold 800 billion won of local stocks in the first half of this year. That’s not bad given the unfavorable economic conditions playing out in the United States, Europe and China.”

Vanguard’s completion of its sell-off is a new opportunity for the Korean bourse, analysts said.

“Vanguard’s wrapping up the benchmark change does not necessarily guarantee foreign investors’ net buying of Korean stocks, but pressures to sell Korean stocks will be assuaged given that the country has relatively healthy foreign exchange soundness compared to other emerging markets,” said Cho Young-hyun, an analyst at Hana Daetoo Securities.

Cho said it’s likely that foreign investors will scoop up stocks that were dumped excessively by Vanguard considering that they have shown similar patterns in the past.

“Investors are advised to pay more attention to companies in chemicals, shipbuilding, automobiles, and IT sectors as they were overly sold during the Vanguard selling period,” he said.

Park Seung-young, an analyst at KDB Securities, said the balance of demand and supply on the local bourse will begin to pick up this month and improvements will be seen in large cap shares in particular.

Meanwhile, foreign investment banks including Credit Suisse, Barclays Capital and Goldman Sachs forecast the Korean stock market will recover in the second half of this year citing the easing of the Japanese yen’s weakening, the Korea Center for International Finance said.

Morgan Stanley, however, lowered its forecast for the 2013 Kospi target range to 2,150 from 2,200 citing a slowdown in China’s economy and the U.S. Federal Reserve’s possible scaling down of its quantitative easing.

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