Korean retail investors attracted to US growth stocks, now 10th Tesla owners

South Korean retail investors, who turn their eyes overseas for higher returns, are heavily buying into US growth stocks amid growing fears of tech stock bubbles. They are particularly attracted to Tesla Inc., becoming the 10th largest stockholder of the electric carmaker.

According to the Korea Securities Depository, the combined ownership of Tesla shares by Korean retail investors valued at $3.67 billion (4.34 trillion won), or 0.89% of the EV maker’s market capitalization of $412.5 billion as of August 28. That’s bigger than investment management firm BAMCO Inc., which hold a 0.87% stake as Tesla’s prior 10th largest shareholder.

Korea’ retail investors, known as Ants, have been active buying force on the local bourses since early this year, but with their attention shifting to foreign stock markets, some pundits call them “Seohak Ants,” meaning individual traders who invest in foreign stock markets.

Local investors held a net $145 million worth of Tesla shares at the end of 2019, accounting for a mere 0.19%. But they purchased $1.53 billion of the stock so far this year to raise their stake. Tesla alone took up 12.8% of all foreign stocks purchased by Koreans so far this year.

Korean individual investors’ buying spree in overseas markets does not confine to Tesla. Their combined investment in foreign stocks soared 123.3% so far this year to an outstanding $32.28 billion. In August, Korean retail investors bought a net $2.09 billion worth of foreign stocks until the 27th.

 



“US companies are far ahead of the companies in other countries in growth industries. Korean investors will look to the US for their foreign investment for a while,” said Cho Ik-jae, senior managing director at HI Investment & Securities.

Latest data from the Korea Securities Depository showed there has been no let-up in Korean investors’ purchasing of foreign stocks and they’re now buying shares through direct investment, unlike in the past when they usually bought overseas shares via exchange-traded funds or ETFs -- a type of investment fund that is traded on stock changes much like other securities but with an underlying assets.

In 2019, six of top 10 foreign shares purchased by Korean investors were through indirect investment such as ETFs. This year, only one in 10 foreign stocks was via ETFs.

TECHS LEAD 4TH INDUSTRIAL REVOLUTION

According to the KSD, Tesla Inc. has been Korean retail investors’ most favorite foreign stock pick, with a total net purchase of $1.53 billion so far this year, followed by Apple Inc. ($937 million), Microsoft Corp. ($615 million) and Alphabet Inc. ($412 million). More recently, Koreans showed fresh interest in Nikola Motor Co., a U.S. hydrogen carmaker. They have bought $211 million worth of Nikola so far this year.

“Overseas stocks favored by Koreans are mostly US companies that are leaders in the Fourth Industrial Revolution era. Many US shares have both greater growth potential and profitability compared to other foreign stocks,” said HI Investment’s Cho.

He said direct purchasing of foreign stocks will be a new trend, given the weakening of the global fund market and easier access to information on overseas companies on the Internet.

Korean retail investors have bought a total of 6.25 trillion won worth of overseas stocks since July. This month, they bought a net 2.48 trillion won worth until the 27th, extending their buying streak to a 15th consecutive month. On the local bourses, individuals have bought a net 6.72 trillion won in shares since July.

Korean investors, when they look to overseas markets, are not just seeking bargains for short-term gains, but seen investing in them for long-term.

KOREANS LONG-TERM FOREIGN BUYERS; TECH BUBBLE LOOMS

For the two months since the plunge of global equities markets in March when the whole world was gripped by the quick spread of the COVID-19 pandemic, Korean investors bargain-hunted a net 4.7 trillion won of overseas stocks, but more recently, they are rather purchasing foreign shares for long-term investment, analysts say.

“Shares on the local bourses tend to move in a boxed-range, so many investors are day traders, meaning they are trading shares for short-term gains. But the US market has shown an uptrend for a decade now, hence long-term investment. That’s why Korean investors are steadily buying US tech shares, while on local markets, they are trading in bios and other themed shares for short-term,” said a Korea retail investor who are active in foreign stock trading.

But there are concerns over the heated interest in foreign shares among Korean investors. Analyst say foreign stock investment is not always the golden ticket for big money, particularly with some Wall Street analysts arguing that that the US market is at tech bubble valuation levels, similar to the dot-com bubble in the late 1990s.

“The US market has been polarized to an extreme extent, with technology shares mostly leading the gains. For Korean investors, it may be good to buy into them as part of their asset diversification strategy, but they should never forget the danger of bubble-busting or foreign-exchange risks,” said Lee Byung-tae, a professor in the College of Business at Korea Advanced Institute of Science and Technology (KAIST).

Write to Yun-Sang Ko and Kyeong-je Han at kys@hankyung.com
, hankyung@hankyung.com