Foreigners And Institutional Investors Reap Different Results

Not all investors cherish the maxim “buy at the knees and sell at the shoulders.”

The well-known saying advises investors to buy stocks at the “knee” level when prices are certainly on the rise and sell them at the “shoulder” level when the rise is over.

Since the 9/11, foreign investors have stuck to this call for maximum profits and minimum losses and made huge profits. Institutional investors, on the other hand, have been losing money. Their loss grew even bigger as a result of an averaging carried out when the Korea Composite Stock Price Index (KOSPI) started to slide after hitting 939.

Foreign investors were net sellers of 492 billion won worth from Sept.11 to Sept. 28, 2001 with the KOSPI at 479.68 points, according to Daeshin Securities’ analysis of the trend in share trade. On Sept. 28, foreigners started to buy shares and they were net buyers of 3.3855 trillion won worth by Feb. 14, 2002 when the KOSPI stood at 796.18. As soon as the benchmark index exceeded the 800-point level, the sell-off started again and foreigners sold over four trillion won worth of shares by the end of May.

Foreign investors are estimated to have made 50 to 100 percent profits on the transactions although the exact profit is unknown.

Meanwhile, institutional investors were net sellers of 1.8303 billion won worth from Sept. 25, 2001 with the KOSPI at the 480 points to Jan. 16, 2002 with the index at the 710 points. Shortly after, they became net buyers and bought 3.6 trillion won worth by the end of May. In short, they ran in the opposite direction of foreigners and made big losses.

Chan-Sun Hong hcs@donga.com