Foreign investors were net buyers of stocks and bonds in July, as the local currency is stabilizing and retail investors are showing more interest, data showed Monday

They returned to the South Korean stock market, net buying 582 billion won ($490.6 million) worth of listed shares in a turnaround from net sales for five consecutive months, according to data by the Financial Supervisory Service.

This is in sharp contrast to the February-June period, when they net sold a combined 26.58 trillion won worth shares. They bought stocks worth 583.5 trillion won, or 30.8 percent of the total market cap as of end-July.

Investors based in the United Kingdom, Ireland and Luxembourg were the biggest net buyers in July.

This stems from a stabilizing Korean won, an earnings parade and a constant surge in retail investing that supported the stock market rally, a high-ranking FSS official said.

The pace of recovery has been slower in the foreign exchange and fixed income markets compared to the equity market.

The currency exchange rate with the greenback hovered above 1,200 won from March to June.

But starting July, the won began to strengthen against the dollar as the exchange rate was below the 1,200-won mark. So there is larger chance for dollar-denominated investments in Korean equities to profit. This came immediately after Korea and the United States extended a $60 billion bilateral currency swap facility by six months in end-June.

There are market perceptions that the exchange rate is expected to gradually stabilize to around 1,150 won. The figure stood at 1,184.70 won as of Friday, as it strengthened by 8.70 won against the dollar.

“The exchange rate stabilization has recently accelerated and we have witnessed a consistent weakening of US dollar over the past few weeks,” wrote Hwang Chan-young, head of commodities and global markets at the Korean operation of global financial service provider Macquarie Group.

“We believe the recent weakening of the dollar has been driven by increased supply and rising risk appetite on macroeconomic recovery.”

In the meantime, the local stock market has been supported by hopes of a global economic rebound and surprise earnings in the second quarter, beating market expectations.

As per preliminary estimates, electronic devices giant Samsung Electronics -- which makes up nearly 20 percent of the local stock market by market cap -- logged an operating profit over 20 percent higher on-year. Semiconductor maker SK hynix’s operating profit also jumped 205 percent.

Meanwhile, retail investors’ growing presence is also powering the stock market rally. The main bourse Kospi is approaching the 2,400-point mark, rebounding to a yearly high for six trading days in a row. This comes amid ample liquidity thanks to monetary easing and temporary restrictions of short selling activities.

The FSS data also showed that foreign investors net purchased listed bonds worth 2.24 trillion won in July, maintaining the buying streak for seven straight months this year. Foreigners were holding 7.5 percent of the entire listed bonds here as of July.

By Son Ji-hyoung (consnow@heraldcorp.com)