Stock inflows to Korea slow on weak currency, valuation

A weaker South Korean currency and worries about valuation have deterred foreign investors’ appetite for local shares, casting expectations of a short-term correction in the stock market.

Foreign investors on Monday sold a net 310.1 billion won ($239.4 million) worth of stocks on the main Kospi, the largest daily selling spree in nearly three weeks, according to data from the Korea Exchange. They bought a combined net 1.9 trillion won in the first 20 days of the month, compared with a total purchase of 6.5 trillion won in January.

That came as the won currency depreciated, hurting the value of foreign investors’ holdings of domestic shares, analysts said. The won has weakened 4.8% to 1,294.5 per dollar so far this month after strengthening 2.6% in January.

“Stronger-than-expected US economic data raised worries about the Fed’s tightening and bolstered the dollar’s value,” said Choi Yoo-joon, an analyst for Shinhan Securities Co. in Seoul. “Foreign stock inflows are expected to slow, although they are unlikely to significantly shrink.”

VALUATION WOES

The South Korean stock market’s valuation is not attractive enough to attract large inflows, analysts said.

The Kospi’s 12-month forward price-to-earnings ratio (P/E ratio) rose to 12.8 times from 12.7 times on Jan. 27, while the index’s 12-month forward earnings per share dipped during the period, according to Daishin Securities Co.

“The KOSPI’s P/E ratio may top 13 times in the near term, but the index is unlikely to advance further,” said the brokerage house’s analyst Lee Kyung-min.

“We can expect another rise (in the index) only after valuation concerns are eased through price corrections.”

Write to Tae-Ung Bae at btu104@hankyung.com

Jongwoo Cheon edited this article.