Stock market insiders are focusing on the future moves of foreign investors, who have tended to dump Korean shares whenever the U.S. dollar trades below 1,060 won.

Although foreigners have had a strong buying spree on the Korea Exchange over the past few weeks, research analysts point to the past when overseas investors based their decisions largely on Korean firms’ export price competitiveness.

Since the 2008 global financial crisis, foreigners have net-sold 3.6 trillion won ($3.3 billion) worth of local stocks at times when the dollar was below 1,060 won (signifying a high Korean currency price), according to data from the main bourse Korea Exchange.

In contrast, they net-purchased Korean equities worth 10.6 trillion won when the won-dollar rate ranged between 1,060 won and 1,100 won.

Citing possible weakness in Korean exporters’ price competitiveness and higher prices of the dollar-denominated Korean stocks, a report from KDB Daewoo Securities predicted that “foreigners’ buying streak will weaken should the won continue to appreciate against the dollar.”

The greenback closed at 1,060.8 won on Tuesday, down 1.4 won from the previous trading session. It was the lowest figure since closing at 1,057.2 won on Jan. 18.

The dollar peaked at 1,161.4 won on June 24, and since then has continued to lose ground against the Korean currency. The dollar is approaching the year low of 1,054.7 won that was reached on Jan 11.

Apart from the exchange rate factor, some market insiders say, foreigners are looking for the right timing to capitalize their investment before the U.S. government’s upcoming policy to scale back its economic stimulus package.

“Retail investors are set to return to the stock market amid the ongoing rally,” said a financial regulatory official. “But history tells the risks of following in the footsteps of foreign investors.”

The Korea Center for International Finance also said in a report on Tuesday that their aggressive buying is unlikely to last long, calling on individuals to keep an eye out for a sudden outflow of cash.

“Aggressive foreign net-buying incidents have not lasted long, judging by the precedents since 2010,” said the research institute, which is funded by the government and the Bank of Korea.

Since July, foreigners net purchased about $12.1 billion worth of Korean stocks, which was about 69 percent of their collective net purchase in major Asian markets including Korea, Taiwan, India, Thailand, the Philippines, Indonesia and Vietnam.

According to the Financial Supervisory Service, foreign ownership of Korean shares reached a six-year high amid investors’ record-long buying rally.

Overseas investors held 33.15 percent of stocks traded on the main bourse and the secondary KOSDAQ as of Monday, estimated at 439.5 trillion won.

The proportion marked the highest level since the 33.2 percent tallied on July 25, 2007. Foreigners owned 35.5 percent of shares listed on the Korea Exchange and 9.8 percent on the KOSDAQ, respectively.

By Kim Yon-se and Chung Joo-won

(kys@heraldcorp.com)

(joowonc@heraldcorp.com)