Long-term outlook remains guarded
The benchmark Korea Composite Stock Price Index (KOSPI) on May 11 hit a new record high of 1464.70, 12.17 points higher than the 1452.53 recorded on April 27. But foreign net selling on May 11 amounted to 307.1 billion won (310 million USD), with foreign investors selling over 1 trillion won of shares in the past month, which could account for this spike. Moreover, while the Morgan Stanley Capital International (MSCI) Index, widely used by investors to benchmark returns, included 17 new South Korean stocks on its most recent listing, observers worry that the MSCI emerging market index will assign low weight to Korean stocks in the middle and short terms. Consequently, experts have mixed views on the effect and consistency of foreign capital flow, which accounts for 40 percent of the South Korean stock market.In the meantime, analysts predicted, “An increase of foreign net selling is just a short-term phenomenon.” Dongbu Securities said, “Foreign investors were selling because they could gain marginal profits from a stronger Korean won against the U.S. dollar, as well as because of higher oil prices." However, some observers say the foreign investment funds will flow out of the domestic market because the MSCI Index may lower the weight of the Korean market in its second adjustment in August. The MSCI emerging market index has increased the weight of Russian gas giant Gazprom from 0.38 to 2.45 percent and it is expected the figure will climb to 4.79 percent in August. Daishin Securities researcher Kwan Byeong-yeol noted, “If MSCI raises its ranking of Gazprom in the August adjustment, they will in turn lower Korean stocks’ emerging market index weight. Consequently, about 300 billion won is expected to shift out of the domestic market.” An official of a foreign securities company had a similar prediction: “The MSCI Index is expected to continuously increase its rating of Russia, so that of the Korean market will decrease continuously. As a result, about 1.8 billion USD will flow out of Korea.” Observers note that if the MSCI emerging market index continues to add Korean stocks, interest from foreign investors will be spurred. Many analysts forecast that foreigners will buy up stocks in which other investors have so far shown relatively low interest. A Seoul representative of the UBS financial firm, Jang Young-woo, said, “We may see a buying spree by foreign investors for the items newly included in the MSCI Index.” But some analysts maintain that foreign investors have steadily turned their backs on the South Korean market since last year. Kim Hak-gyun, an analyst for Korea Investment & Securities Co., observed, “International investors remain strong net buyers, but they are starting to ignore the South Korean market because they already own enough Korean stocks and the price of blue chip stocks has soared too high.”
