Korean firms’ solid earnings help local bourse retain foreign capital


Foreign investors increased their holdings of Korean shares despite the continued turbulence in financial markets around the world, data showed Wednesday.

According to Korea Exchange and Korea Financial Investment Association, foreign holdings reached 32.86 percent as of Nov. 28, slightly up from 32.14 percent at the end of July when the global financial turmoil was yet to have an impact on the local bourse.

In August, concerns began to grow over a short position by foreign investors in Korea and other emerging markets, a move aimed at bracing for the worst by securing extra liquidity, but the trend stabilized in recent weeks, largely because local firms’ earnings defied dire predictions.

“Korean companies are turning out profits at a respectable level, which is about double the level seen at the height of the financial crisis in 2008,” said Kim Jeong-hoon, analyst at Korea Investment & Securities.

“Considering the dividend income, there is no compelling reason for foreign investors to reduce their stake in Korean firms,” he said.

The broader picture, Kim noted, is that few expect the current volatility in the eurozone to lead to a global credit crunch, an outlook that bolsters the logic in favor of bets on emerging market indexes.

But the relatively rosy outlook does not mean the stock market in Seoul is outperforming its peers or turned a profit during the cited period. KOSPI touched 2,133.21 at the end of July and, due to a continued sell-off by both domestic and foreign investors, slumped to close at 1,815.28 on Nov. 28, marking a 17.5 percent decline during the period.

The total market capitalization tumbled from 1.203 quadrillion won to 1.03 quadrillion won. The stocks held by foreign investors saw their value drop from 387 trillion won to 339 trillion won.

Institutional investors helped drag the KOSPI down further by opting for a loss cut during the turbulent trading sessions in the past months, which in turn, kept the foreign investors’ share from falling further.

Notably, foreign investors kept shares in Korean automakers. They bought a net 6.35 trillion won worth of shares in Hyundai Mobis and 1.36 trillion won worth of shares in Hyundai Motors.

Other shares favored by foreign investors include Samsung Life Insurance, SKC&C and Hyundai Insurance.

In contrast, they unloaded shares in OCI, LG Chem and Hanwha Chemical.

The top 30 stocks held by foreign investors saw their combined value go down by 14 percent, slightly above the market average.

In the last decade, the foreign ownership of Korean shares peaked at 45 percent in April of 2004 before sliding to 39.7 percent in December of 2005. The year-end figure continued to slump to 37.22 percent in 2006 and 32.39 percent in 2007. After the 2008 financial crisis receded, the figure hit a low of 27 percent in April 2009 before recovering lost ground in the following years.

By Yang Sung-jin (insight@heraldcorp.com)