After spearheading last year’s bull run of the Korean market, foreigners have shifted to big net sellers of local shares this year due to concern over global inflation and other negative factors, industry sources said Sunday.
As of Friday, foreign investors sold a net 2.06 trillion won ($1.83 billion) worth of Korean stocks, according to the Korea Financial Investment Association and Hana Daetoo Securities Co. During the 27-session period, foreigners were net sellers for 17 days.
During the last four sessions alone, foreign investors dumped a whopping 2.3 trillion won worth of shares, pulling down the benchmark Korea Composite Stock Price Index (KOSPI) by 104 points, they said.
The KOSPI tumbled 31.31 points, or 1.56 percent, to 1,977.19 on Friday, extending a losing streak to a fourth session. The index fell below the 2,000-point level for the first time this year, sinking to its lowest level since Dec. 8, 2010.
In contrast to the foreign sell-off, local retail investors bought a net 3.27 trillion won worth of shares during the 27-day period, while institutions sold a net 154.4 billion won, according to the sources.
“Foreign investors led the market decline by selling more than 2 trillion won worth of shares,” said Kim Dae-yeol, an analyst at Hana Daetoo Securities.
Foreigners have been exiting the local stock market due to global inflation woes, monetary tightening in major economies, political unrest in Egypt and risks involving North Korea, he said, adding that the outflow of foreign funds will not last long, given the local economy’s recovery and the resurgent attractiveness of the local market’s undervaluation.
Foreign investors received a large amount of dividends from big-cap listed companies after snapping up their stocks last year, market sources said.
As of Thursday, 18 out of the top 30 listed companies by market capitalization paid out a combined 2.21 trillion won in dividends to foreign shareholders, up 7.8 percent from a year earlier, the sources said.
Meanwhile, foreign investors’ net holdings of Korean bonds fell for a second straight month in January amid concerns over interest-rate increases and uncertainty about regulations on capital flows, the nation’s Financial Supervisory Service said.
Korean bonds held by foreign investors dropped by a net 441.7 billion won ($400 million) to 73.94 trillion won as of Jan. 31, the regulator said. Sales reached a record net 5.3 trillion won in December.
The Bank of Korea lifted the benchmark interest rate by a quarter of a percentage point to 2.75 percent last month in its third increase since July.
U.S. investors were the biggest sellers of bonds in January, with their holdings declining by a net 517.3 billion won, according to the statement. China was the biggest buyer, with net investment of 426.3 billion won, the regulator said.
Selling of Korean bonds is likely to continue after the government revived a tax of as much as 14 percent on interest income from treasury and central bank bonds held by foreigners, said Eugene Kim, Chief Investment Officer at Samsung Asset Management Co.