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Foreign Buying of Korean Stocks to Continue Next Year

Posted December. 16, 2009 08:53,   


Foreign investors are expected to continue investing in Korean stocks next year after plunking down a record amount this year.

The Korea Exchange said yesterday that foreign investment in the domestic stock market this year as of Dec. 10 was 31.48 trillion won (27.1 billion dollars), breaking the previous mark of 13.77 trillion won (11.7 billion dollars) in 2003, when the credit card bubble formed.

Between 2005 and last year, however, the amount of foreign stock investment had fallen every year.

When the financial crisis hit the world last year, foreign investors were expected to withdraw more money but the Korean stock market was the first to recover along with those of China and Brazil. Foreigners accordingly began to buy Korean stocks.

Though net foreign buying is expected to fall next year from this year in Korea, foreign stock purchases are likely to continue.

Above all, global interest rates are likely to remain low. With Dubai’s debt moratorium and the falling sovereign ratings of Greece and Spain, suspicion is growing over global economic recovery and postponing discussion on exit strategies.

This is why the U.S. Federal Open Market Committee’s announcement of monetary policy scheduled for today in Washington is gaining attention.

Kim Se-joong, director of investment strategy at Shinyoung Securities, said, “If world interest rate hikes are delayed, investors are expected to borrow not just dollars at low interest rates but also the Japanese yen to invest. Such investment is highly likely to come to Korea, which showed good business performance this year.”

According to Emerging Portfolio Fund Research, a global fund tracker, global equity funds are moving to emerging markets. Global bond funds are also flocking to emerging markets and high-yield funds investing in bonds with low credit ratings.

As of October, Korean stocks were worth 8.2 billion dollars, a huge increase from 4.5 billion dollars at the end of last year. Since the country has a relatively low price-to-earnings ratio among emerging markets, investors are likely to raise investment in Korea.

Jeong Seung-jae, a researcher at Mirae Asset Securities, said, “Global funds went to developed markets when the global financial crisis hit, but returned to emerging markets this year. Since low interest rates and the weak dollar are expected to continue, such a trend is likely here to stay.”

Korea’s potential entry into MSCI is another factor. Since the Korean stock market was included in the FTSE in September, it will likely join MSCI, which is considered more influential than the FTSE.

Foreign investment is likely to flow in around May, when a meeting will decide Korea’s MSCI membership.