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Foreign investors are rapidly exiting the Seoul bourse. A net selling spree by foreigners has continued for 20 business days, from June 9 to July 4, unloading W6.2 trillion (US$1=W1,050) of Korean stocks. The 20-day net sale is a record tie with another in March 2005 but the sales figure this time is three times greater than the W2.1 trillion sell-off then. Foreigners have sold some W21 trillion in the Korean bourse so far this year and could outdo last year's W24.7 trillion for the full year. On Friday when foreign net selling in the securities market reached W266.1 billion, the Korean stock index fell below 1,600 to close at 1,577.94 points.
¡ß Depression, inflation reducing market appeal
Foreign selling sprees have been seen in most emerging Asian markets in recent days. In June, some US$3.8 billion in foreign funds left the Taiwanese stock market and $2.6 billion exited the Indian stock market. Of the six emerging Asian economies where foreign investment transactions are officially tallied, last month foreigners net purchased only in the Philippines, at $59 million. And in July, foreigners have net sold $35 million in the Philippines as well.
Experts say that foreign funds are leaving the relatively insecure emerging markets over worries of stagflation (depression coupled with inflation) worldwide. "The fast-growing emerging markets have assisted the advanced economies, but signs of stringent monetary policies due to inflation in those markets have reduced their growth merit," said Samsung Securities market strategist Hwang Kum-dan. But the exodus of foreign capital is a harsher blow to the Seoul bourse as Korea has scarce natural resources and is highly dependent on exports. Hyundai Securities strategist Rhoo Yong-seok says high oil prices and inflationary pressures increase corporate expenses and cut product demand in advanced economies, which inevitably lowers corporate profit margins in Korea and other emerging countries.
¡ß No end in sight
Experts expect the selling spree to continue for the time being. Chang Sung-moon at Fidelity International says foreign investors have been steadily unloading Korean stocks since 2006 and the trend will continue as stock prices fell less in Korea compared to bourses in Taiwan, India and Hong Kong. Meanwhile, the European Central Bank on Thursday raised its key interest rate by a quarter percentage point amid inflation worries. A rate hike increases demand for stable assets like bonds, causing stock markets to contract. "As the ECB rate hike suggests, the global trend is to reduce stock holdings and shift to stable assets," said Douglas Ahn, managing director at UBS Korea. "With no particular boost for stock gains, foreign selling will likely continue."
(englishnews@chosun.com )
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