Foreign Investment in Korea’s Stocks Surges

Foreign investors in the Korean stock market have purchased almost three trillion won net in stocks so far this year.

Some are now anticipating a “Buy Korea” trend because foreign investors are now buying instead of selling as they did in 2005 and 2006.

Others, even though they anticipate a big buying spree, warn that foreign investors could sell off their stocks to secure their profits.

Foreign investors sold a net worth of 2.38 trillion won and 11.21 trillion won in 2005 and 2006, respectively. While other markets were reaching new peaks last year, the Korean stock market rose only four percent due to the great sell-off.

This year, foreign investors have bought a net 2.91 trillion won in stocks as of April 22.

Foreign investors have targeted stocks issued by banks. The top three companies that attracted foreigners were all banks – Kookmin Bank (519.1 billion won), Shinhan Group (461.6 billion won), and Korea Exchange Bank (363.9 billion won).

Some say that foreign investors are buying these stocks because the price-equity ratio (PER) of domestic banks ranges from seven to nine, which is much lower than that of developed nations. Some say that they are buying because dividend payments were high this year, and that they are anticipating another good year next year.

Private investors are making a killing on these stocks with the prices reaching new highs thanks to the foreign investors.

According to Paxnet, a securities portal site, 65.99 percent of the 1,482 respondents of a survey said that they achieved more than a five percent profit this year on stock investments alone.

Foreign investors are buying stocks because the Korean stock market is looking more promising and liquidity all over the world is plentiful.

“Foreign investors who carried too many Korean stocks sold for the last two years to lower their risk,” said researcher Kim Hak-kyoon of Korea Investment & Securities. “They are buying Korean stocks again because Korean stocks have gotten more affordable.”

“The signing of the Korea-U.S. free trade agreement (FTA), the thawing of relations between North Korea and the U.S., and signs of a coming upgrade of the national credit rating have all helped bring about this change,” said researcher Choi Woon-seon of Seoul Securities.

“Foreign investors are not only eyeing the Korean market,” said Park Chan Ik, head of Korea research at Morgan Stanley. “Foreign investors are investing heavily into emerging markets in Asia.”

Some warn that even if foreign investors are buying heavily, it is not for sure that this will lead to a “Buy Korea” trend.

“Some foreign investment is actually short-term and speculative investment,” said Kim Young-ik, the head of research at Daehan Investment and Securities. “The inflow of investment can stop any time.”

“If you buy stocks just because foreign investors are, you might end up losing money,” warned Director Ahn Seung-won of UBS.

ssoo@donga.com