Foreigners sell net $4 bn of shares in March, second only to Aug. 2021

Foreign investors in March sold a net 4.84 trillion won ($3.97 billion) worth of shares on South Korea's main bourse Kospi, their highest-ever monthly net sales after August 2021. Foreigners’ holding rate on the main bourse has dropped to the lowest level over the past six years as the US dollar holds its strength and surging raw material prices impact Korea's trade balance.   

Stocks of durable goods, the nation's main exports, are also bearish as some countries have declared they will start treating COVID-19 as an endemic disease. Foreigners dumped semiconductor stocks the last month, such as Samsung Electronics Co. and SK Hynix Inc., and bought shares showing robust performances such as LG Innotek Co., Samsung Engineering Co. and Korea Zinc Inc. instead.  

Foreigners’ net stock sales amount last month comes second only to the net selling of 6.3 trillion won last August. The shareholding rate fell from 38.2% in 2019 to 32.4% in February, hitting the lowest in March after 31.9% in February 2016.

The main reason for foreigners’ withdrawal is the rally of the US dollar amid the US Federal Reserve’s accelerated tapering measures and the Russia-Ukraine war. The currency weakened past the support line of 1,200 won per dollar early this year, driving foreign investors to leave the Korean stock market.   

“A stronger dollar leads foreigners away from Korean stock purchases due to the high exchange loss. Investors have other options in the Asian stock market where the dollar rally is not as strong as in Korea,” said Jeong Myung-ji, head of investment and research at Samsung Securities Co.

Surging raw material prices are also pressuring Korea’s trade balance. Both exports and imports of Korea hit a record high in March, marking a loss in a month. The loss will further push up the dollar's value, boosting the vicious cycle,” said Tae-hong Kim, chief executive of Growth Hill Asset Management Co. in Korea.

Raw material price hikes could hit a number of Korean firms that import raw materials and export intermediate goods. The Kospi dropped 7.39% during the first quarter of this year while some raw material exporters in Southeast Asian countries saw a rise in their stock markets. Malaysia’s Kuala Lumpur Composite Index (KLCI) and Indonesia Stock Exchange (IDX) respectively rose by 1.27% and 7.4% in the same period.

The Korean stock market has become more bearish amid the global transformation from pandemic to endemic. Market watchers expect the endemic era will drive a surge in services and a decline in consumption of durables. However the dollar against the won is nearing its peak, and the global dollar rally will slow in the second half of 2022 as the European Central Bank speeds up monetary policy normalization, said Korea Investment & Securities Co. analyst Yeom Dong-chan.

Stock investors need to focus on performance rather than market indices or sectors, industry watchers say. Foreigners mainly purchased some top-performing shares in March, including 293 billion won worth of LG Innotek. The electronics part manufacturer is expected to achieve more than 1 trillion won of annual operating profit in the optics solution sector. Over the past month, the firm’s estimated sales and operating profit for this year rose by 157 billion won to 16.4 trillion won and 11.4 billion won to 1.4 trillion won, respectively.

Additionally, foreigners bought 202 billion won worth of Samsung Engineering shares, 179 billion won of Kakao Corp., 131 billion won of Korea Zinc and 125 billion won of Korea Aerospace Industries Ltd. last month. LG Innotek, Samsung Engineering and Kakao shares respectively jumped by 17.43%, 11.21% and 12.65% in March.

Write to Sung-Mi Shim at smshim@hankyung.com
Jihyun Kim edited this article.