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Foreign investors rush to ‘undervalued’ stocks

Feb. 12, 2024 - 15:43 By Im Eun-byel
A electronic board shows the main bourse Kospi closing at 2,620.32 points at a dealing room of the Hana Bank headquarters in Seoul on Thursday, the last trading day before the Lunar New Year holidays. (Yonhap)

Foreign investors have been racking up “underperforming shares” on the Kospi, Korea’s main bourse, backed by increased expectations of the government’s initiative to boost the local stock market.

Since the government late last month vowed to come up with new measures to tackle the "Korea discount," offshore investors are increasingly flocking to invest in firms with low price-to-book ratios in anticipation of stock price recoveries.

PBR is a metric used to compare a company's market price with its book value, determining how much a firm is valued on the stock market. A PBR below 1 suggests that the firm's stock price is undervalued.

Buoyed by such expectations, foreign investors bought a net total of 5.48 trillion won ($4.11 billion) on the Kospi between Jan. 25 and Thursday last week, before the long holiday weekend.

Shares most bought by foreign investors in the period were Hyundai Motor (1.23 trillion won), Kia (539 billion won), Samsung C&T (307 billion won) and KB Financial Group (278 billion won). Net buying for Hyundai Motor was 21.9 percent of the overall net buying for the Kospi market.

The companies are recognized to be major names of low PBR with relatively low stock prices compared to their worth. Hyundai Motor’s PBR stood at 0.51 as of end-2023, with Samsung C&T at 0.63 and KB Financial Group at 0.45.

With the buying spree from foreigners in the past two weeks of the trading day, Hyundai Motor’s stock price rose by 37.5 percent, Kia's by 29.2 percent, Samsung C&T's by 32.9 percent and KB Financial Group's by 36.5 percent.

Contrary to foreign investors, retail investors in Korea net sold shares of 6.59 trillion won to lock in profits in the same period. Some of the top-selling shares were those most bought by foreign investors, including Hyundai Motor (1.43 trillion won), Kia (618 billion won), Samsung C&T (451 billion won) and KB Financial Group (327 billion won).

Instead, local investors rushed to buy shares of Naver (229 billion won), Samsung Electro-Mechanics (92 billion won), Hyundai AutoEver (76 billion won), Hybe (71 billion won) and LG Innotek (67 billion won).

Meanwhile, the government has vowed full efforts to boost the local share market, seeing it to be relatively underperforming compared to the stock markets of other major economies.

Korea’s average PBR for listed firms stood at 1.1 as of last year, lower than the US’ 4.5, India’s 3.69, Taiwan’s 2.41, and Japan’s 1.4, according to the Financial Service Commission.

The FSC and the Korea Exchange are to unveil the “corporate value-up program” to target the firms with low PBR to boost their market value by the end of this month.

Market watchers expect the trend to be unchanged for the time being.

“The buying spree for shares with low PBR is to continue for a while,” analyst Cho Chang-min from Yuanta Securities assessed. “But selective screening of the shares is required, especially focusing on their financial soundness."