Foreign buying in Korean shares increases amid exit from HK and Chinese markets

[Photo by Yonhap]

Foreigners have upped net buying in Korean shares this month, timed with their exodus from Hong Kong and Chinese stock markets amid jitters over the extension of a single-man rule in Beijing.

Foreign investors have net purchased 3.05 trillion won ($2.1 billion) in Korean stocks in October, according to data from the Korea Exchange and the Korea Securities Depository. They had net sold 16.2 trillion won worth from January to June this year. In the second half, they bought around a net 7 trillion won worth.

Bargain hunting from cheaper exchange rate and stock price plunges could have brought back foreign capital, but that alone cannot explain active foreign buying this month, said analysts.

The main Kospi has bounced back to close at 2,293.61 on Monday, from 2.155.49 marked a month earlier, on Sept. 30.

Foreigners had been heavy sellers in Taiwan, which resembles the Korean market for its heavy reliance on chip and other IT sectors, observed Park Sang-hyun, analyst at Hi Investment & Securities.

Foreign exit from markets under Chinese influence since President Xi Jinping¡¯s third term was declared last Sunday could have turned some of the funds into the Seoul markets, he added.

Korean investors of equity-linked security (ELS) products tied to the Hang Seng China Enterprises Index (HSCEI) have been looking at losses due to the crash in underlying stock prices.

Nearly 30 percent of such ELS products that Koreans invested in have the knock-in barrier set at the index performing at 5,000 and 5,500, meaning that investors may lose their investment principal when HSCEI enters the range. The index is trading around 5,013 on Monday afternoon. It closed last year at 83,520 but plunged nearly 40 percent so far this year.

The outstanding balance of HSCEI-tied ELS products reached 21.2 trillion won in September, rising 34.38 percent compared to a year ago.

The amount of HSCEI-tied ELS products with knock-in options set at between 5,000 and 5,500 is estimated at 3.2 trillion won. That of those with knock-in line set above 5,500 is estimated at 2.8 trillion won.

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]