Foreign Investors Snap Up Battered Korean Stocks

    February 04, 2009 09:26

    Investor sentiment on the Korean stock market was gloomy on Monday morning when the government announced that exports in January fell 32.8 percent from a year ago. Stocks could have plummeted, and it seemed clear that fast-moving foreign investors would dump Korean shares. But when the market opened for trading, foreign investors instead began steadily buying Korean shares and ended up acquiring around W230 billion (US$1=W1,390) worth by the end of trading.

    The same thing happened on Tuesday, when the International Monetary Fund announced that the Korean economy would contract 4 percent this year, the worst forecast among G20 countries. Foreign investors acquired more than W220 billion worth of Korean stocks, sending the Korea Composite Stock Price Index up.

    Even while each day brings new gloomy economic data, foreign investors are flocking to the Korean stock market. They started buying up Korean stocks at the end of November, when the KOSPI slid to the 900 level and the won weakened to 1,500 against the U.S. dollar. From then until Tuesday, they net bought W2.7 trillion worth of Korean shares.

    Out of countries that tally stock purchases or sales by foreign investor including Taiwan, Thailand, India, Indonesia and the Philippines, Korea was the only one where foreign investors net bought stocks in January ($522.7 million). As a result, Korea ranked fourth among the world's 31 major stock markets in terms of gains (3.35 percent) in January, following China, Brazil and Denmark.

    Park Chan-ik, Morgan Stanley's senior managing director in Korea, said the reason was a forecast that the won will strengthen. The won weakened 35 percent against the dollar last year and was one of the weakest currencies in the world at the end of last year. Lee Jae-man, an analyst at Tong Yang Securities, says if it strengthens, foreign investors will be able to benefit from foreign exchange gains even if stock prices do not rise. This is the effect that is drawing foreign investors here.

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