Foreign unloading of S.K. stocks expected to dwindle

Long-term selling expected to be capped by U.S. interest rate drop

Foreign investors are selling their holdings of South Korean stocks, with the accumulative net selling since the end of April reaching 10 trillion won (10 billion USD). Some analysts predict that the selling pace will decelerate if concerns over a further interest rate hike by the U.S. Federal Reserve are eased.

By country, the unloading by investors from the United States has affected the local stock market the most. British investors, however, come in first when it comes to the absolute amount of net selling so far this year. Funds from the country were unloaded at rates of 200 billion to 900 billion won every month during the first half of this year. During that period, Britain sold a net total of 3.9 trillion won.

Singaporean funds came in second for selling of South Korean stocks, with that country's net selling reaching a monthly average of 300 billion won to 500 billion won, save for March this year. For the past six months, its accumulative net sales of South Korean stock amounted to 1.64 trillion won.

Still, the exodus of U.S. funds from the South Korean market is having a relatively greater impact on the local money market than British and Singaporean firms, which have continued their net selling for the past two years. The U.S. bought more South Korean stocks than it sold until April this year, but has turned to net selling of Korean stocks in May and June, during which time U.S. investors sold a combined 3.36 trillion won worth of stocks.

Funds from Luxembourg and the Cayman Islands also turned to net-selling in May and June after buying more shares than it sold in the previous four months. French funds represent the only group that has continued to purchase more South Korean stocks than it unloads, to the tune of 2.3 trillion won nearly every month.

Whether the so-called "Sell Korea" trend continues will likely depend upon the decision that the U.S. Federal Reserve will make on interest rates this week. Wall Street analysts are expecting a freeze on the U.S. policy of continued interest rate hikes, in place for several years running. A cap on interest rate increases in the U.S. would raise the possibility of a slowdown in the exodus of foreign funds from the South Korean market, as money in the U.S. is freed up for investment both by domestic and international firms.

Some analysts here also say that the massive sale of South Korean stocks will likely have slowed down in July, unlike May and June.

But "even in August, the net-selling trend is expected to continue," said Hwang Young-jin, an analyst at Mirae Asset Securities Co., "but the extent will be smaller than it was in May."