China bullish on Korean shares

Chinese are no longer limiting their purchases to high-end Korean goods at department stores or duty-free shops.

From December through May, Chinese investors bought 1.4 trillion won ($1.38 billion) worth of Korean stocks traded on the Kospi. That’s even larger than the 1.2 trillion won all other foreigners combined who invested during the same period.

In particular, Chinese investment in Korean stocks has increased noticeably since March. Prior to March, Chinese investors’ stock purchases were 30 billion won to 40 billion won per month.

But since then, the figure has grown to between 60 billion won and 300 billion won.

There’s even analysis in the market that Chinese investors played a significant role in turning foreign investors from sellers to net buyers in April.

It’s not unusual that Chinese investors have been attracted to the Korean market, as they have steadily investing in the stock market since 2008. Between 2008 and May, Chinese investors topped the list of foreign net buyers on the Korean equity market with 8.2 trillion won, followed by Saudi Arabia with 6.4 trillion won.

Market experts say increased Chinese investment in recent years is largely because of domestic market reform that encourages private financial companies to expand their investments overseas.

In order for a Chinese company to invest overseas, it needs to be approved by the government as a qualified domestic institutional investor, or QDII. Until 2006, those approved were mostly government agencies, including the State Administration of Foreign Exchange and China Investment Corporation.

Since 2008, however, Chinese private banks, brokerage firms and asset managers were encouraged to expand their investment in overseas markets.

Most QDII investments are made in China. In the first quarter, nearly 55 percent of such investments were in Hong Kong, followed by 24.3 percent in the United States and 5.8 percent in Korea.

Market experts say Chinese investor interest in Korean stocks is on the rise.

“When compared to the first quarter of last year, Chinese investors have been reducing their investment in other regions, including Hong Kong, but they have been increasing their investment in the United States and Korea,” said Han Jung-sook, a China researcher at Hana Daetoo Securities. “Since the gap between the Hong Kong market and the market on the mainland has been narrowing, Hong Kong has been losing its appeal. It’s likely those investments that used to land in Hong Kong can be diverted into other Asian emerging markets, including Korea.”

More Chinese investments are expected to flood into the Korean stock market after Beijing lowered the reserve requirement ratio of financial companies in April and again this month.

“Thanks to the move in April, a supply of 80 billion yuan [$12 billion] entered the market,” said Sung Yeon-joo, an analyst at Daishin Securities. “It is expected that a total of 130 billion yuan in liquidity will result from the more recent move.”

Market experts speculate that Chinese investors, like any foreign investor, will likely focus on buying large stocks like Samsung Electronics or Hyundai Motor. This is mostly due to the ease of access to information about big conglomerates.

A recent study by Hana Daetoo Securities showed that most large Chinese investments in the past three months found their way to Samsung Electronics, Orion, Lotte Shopping, CJ CheilJedang, Shinsegae, Korean Air, Nongshim and Kolmar Korea among the Kospi 200.

“Most of the companies were those that Chinese investors easily recognize, such as those that already have a business in China or whose names have been exposed thanks to Hallyu,” said Han at Hana Daewoo Securities. “There’s a possibility that once more Chinese capital flows into the Korean stock market, the value of these companies’ stocks will advance further.”

BY CHUNG SEON-EON [ojlee82@joongang.co.kr]