Foreigners net sell Korean shares for 9th straight trading day

Foreign investors dumped Korean stocks for the nine consecutive trading days on Friday. The selling spree that began on August 2 is similar to that occurring shortly after the American investment bank Lehman Brothers collapsed in 2008.

With European investors withdrawing their capital from the Korean stock market en masse, fears are rising that the selling spree will be prolonged.

Foreign net selling is mostly to blame on arbitrage program trading in which stocks are traded automatically based on differences between futures and spot prices, but the continued selling stream is a matter for fear, said experts.

Foreign investors net sold more than 280 billion won (259 million U.S. dollars) worth of Korean stocks on Friday though the Dow and the Nasdaq posted huge gains on Thursday.

The accumulated value of foreign net selling for nine trading days from Aug. 2 through Friday reached 5.1 trillion won (5.05 billion dollars), or 0.41 percent of 1,225 trillion won (1,133 billion dollars) in market capitalization on Aug. 1, the day before the KOSPI tanked.

In 2008, when Lehman Brothers went bankrupt, foreign investors net sold 3.26 trillion won (3.02 billion dollars) worth of shares for 10 consecutive days from Oct. 15 through 28. This was 0.47 percent of the market capitalization of 695 trillion won (643 billion dollars) on Oct. 14 that year.

The value of net selling this time is larger than that in 2008, but its proportion to market capitalization is similar to that of 2008.

Lee Jae-hoon, an analyst at Mirae Asset, said in a report released Friday that the value of foreign net selling from Aug. 2 to Thursday was 1.46 percent of the market capitalization of shares owned by foreign investors. The figure is almost on a par with the average proportion of the value net sold by foreign investors from September to December 2008 to the market capitalization of foreign-owned shares (1.8 percent).

“Foreign net selling is apparently reaching its peak,” Lee said, adding, “This means foreign investors see the latest tumult as similar to the debacle in the wake of Lehman Brothers` collapse, so the prospects of more intensified net selling cannot be ruled out.”

European investors are leading the exodus from the Korean stock market. According to the Financial Supervisory Service, net selling by Europeans soared from 22.1 billion won (20.4 million dollars) Monday to 875.9 billion won (810.3 million dollars) Tuesday and further to 1.24 trillion won (11.5 billion dollars) Wednesday.

yunjung@donga.com