Foreign investors dump $3.2 billion of Korean stocks in 2022

Electronic display boards at Hana Bank in central Seoul show market closings on Tuesday. [YONHAP]

Foreign investors sold more than 4 trillion won ($3.16 billion) of Kospi stocks this year, with Samsung Electronics the most unloaded, Naver and Kakao trailing far behind.

Through Dec. 26, non-Korean investors net sold 4.18 trillion of main board shares. Foreign investors unloaded 8.37 trillion won in Samsung Electronics this year as of Monday. They net sold 3.06 trillion won in Naver and 1.69 trillion won in Kakao.

Foreigners fleeing the market comes as the semiconductor business weakens, inventories remain high, rates rise and regulations create concerns.

Other companies that made it into the top 10 list of most sold stocks include LG H&H, KakaoBank and LG Electronics.

“Global corporations made a lot of facility investment when the economy was good, so there are a lot of inventory left now,” said Lee Seung-woo, a head of a research department at Eugene Investment. The solutions are “either an increase in demand or to reduce supply, but Samsung Electronics isn’t cutting the production,” raising concerns for the semiconductor industry.

“There is no internal discussion at the moment” about a cut in memory chip production, Han Jin-man, executive vice president and head of the memory global sales and marketing at Samsung Electronics, said at a press conference held in San Jose, California.

“Samsung’s basic position on this matter is that there should not be artificial production cuts,” he added.

Vulnerability of Korean stocks to interest rate and foreign exchange rate also weakened the investment sentiment. Emerging markets are reliant on foreign investment and foreign capital, and much of that money is fleeing toward higher returns.

The Bank of Korea raised the base interest rate to 3.25 percent in November from 1.25 percent in the beginning of the year. The U.S. federal funds rate is in a range of 4.25 to 4.50 percent. The rate in January was a range at 0 to 0.25 percent.

Since the beginning of the year, the won is down 6 percent against the dollar.

“The Korean stock market has a lot of IT and reusable battery stocks, like Naver and Kakao, so its attractiveness falls from the foreign investor point of view at times of rising rates,” said Seo Sang-young, head of media contents department at Mirae Asset Securities.

Countries with a high reliance on exports, like Korea, tend to act like leading indicators for the global economy, with the stocks rising before the global economy improves and underperforming when the economy declines.

Structural issues were also noted.

Since opening up the market to foreign direct portfolio investment in 1992, global investors accounted for between 30 and 40 percent of market activity over the past two decades. But they have contributed significant net outflow since March 2020.

“Foreign ownership in the Kospi stocks is now down to 30 percent, the lowest rate since the global financial crisis,” said the Asia Securities Industry and Financial Markets Association (ASIFMA) in a report November. “We believe one of the drivers behind this trend beyond fundamental factors may be related to a number of addressable market structural issues.”

ASIFMA is a regional trade association comprising a range of 165 financial institutions, including Goldman Sachs.

"An unusually protracted” short sales ban since early 2020, the limited access to information of global investors with respect to acceptable trading activities and challenges obtaining the required Investment Registration Certificate were cited as some of the regulations that make Korean stocks less attractive.

BY KIM GYEONG-JIN, JIN MIN-JI [jin.minji@joongang.co.kr]