Capital outflow trend soon to end, assures FSC

The current capital outflow trend in the Korean market has not reached an alarming level and will soon end, according to a high-ranking official of the financial authority on Tuesday.

Kim Yong-beom, secretary general of the Financial Services Commission (FSC), dismissed concerns at a press conference.

Foreign investors have continued to sell Korean shares since early Dec. 2, except for on Jan. 6, when they bought shares of Korea Aerospace Industries.

On Tuesday, foreign investors sold 240.74 billion won ($198.94 million) in shares. The benchmark Kospi closed 0.21 percent lower compared to the previous day amid continued jitters in the Chinese stock market.

“Recent foreign sell-offs aren’t at an alarming level,” Kim said. “The trend may turn into a buying streak next week at the earliest.”

The nation’s top financial regulator sees certain amounts of capital outflow as inevitable due to the gradual interest rate hikes by the U.S. Federal Reserve. But it is also confident that capital outflow from the Korean market will stabilize in both quantity and pace.

“As part of normalization in the global financial market, capital will escape from emerging markets and head to developed markets,” Kim said. “Emerging markets whose growth has been reliant on leveraging will be dealt a blow, while markets grown based on their economic fundamentals will be less affected.”

Korea has had relatively less foreign capital inflows compared to other emerging markets. The nation’s short-term foreign debt has showed a significant decline, from 47.2 percent of the country’s total foreign reserves in late 2008 to 29.2 percent as of September 2015.

Despite the confidence of the FSC, market analysts are divided on when the foreign-selling spree will end.

“As the won-dollar rate is expected to continue to rise, there is a high possibility that foreign investors will leave the market,” said Kim Sung-hwan, an analyst at Bookook Securities.

Others predict a turnaround either this week or next.

“1,200 won to the dollar is still considered cheap by foreigners, so the won’s weakening wouldn’t strengthen the current selling binge,” said Park Sung-hyun, an analyst at Samsung Securities.

“As of last week, foreigners have offloaded 6.1 trillion won in the past nine weeks, which historically implies a near-end,” said Kim Yeong-il, an analyst at Daishin Securities. “The end of this week will be the turning point.”

In 2013, foreign investors began buying after selling for 6.6 trillion won over eight consecutive weeks, Kim said.

The recent sell-off trend is largely because of seasonal factors, said Kim Hak-soo, director general of the capital market bureau at the FSC.

“In December, investors have typically shown similar patterns as companies close their books that month,” Kim said. “We don’t see that capital outflow has accelerated since the U.S. rate hike.”

A significant portion of the capital outflow is oil money, as many oil producers in the Middle East are pulling out investments amid falling oil prices and widening government deficits.

Despite the recent financial woes sparked by the Chinese stock market’s crash and geopolitical factors in Middle East and on the Korean peninsula, the Korean stock market has shown significant stability, Kim added.

Compared to major stock markets across the globe, which had losses between 6 and 15 percent, the Korean market has fallen just 3.4 percent since late December.

Foreign investment banks such as Morgan Stanley and Barclays forecast the Kospi will soar to between 2,000 and 2,200 points within 2016, the secretary general said.

“Although the market is hovering around 1,900 points at the moment, it’s price-to-book value ratio is 1.0, which is very low compared to other markets and indicates that it’s undervalued,” Kim said. “So, there is a lot of room for the market to rally.”

BY SONG SU-HYUN [song.suhyun@joonang.co.kr]