Foreign investors dump Seoul shares amid geopolitical risks

Electronic boards show the Kospi closing at 2,440.04 points and the Korean won against the dollar at 1,399.7 won, at a dealing room of the Hana Bank headquarters in Seoul on Thursday. (Yonhap)

Foreign investors continued the selling spree on the local stock market amid heightened geopolitical tensions both within and outside the Korean Peninsula, while the Korean won weakened against the dollar.

The benchmark Kospi closed at 2,440.04 points Thursday. Though it dipped to the 2,430 range on the previous trading day, it managed to make a slight recovery backed by the 119.6 billion won ($82 million) net buying of retail investors.

Yet foreigners continued the selling streak for five consecutive trading days, dumping 130.9 billion won worth of shares on the Kospi on Thursday. On Wednesday, they offloaded 902.1 billion won of shares, bringing the main board down by 2.47 percent to 2,435.9.

Institutions net sold 17.6 billion won Thursday, extending their selling activities after shedding 12 billion won on the day before.

The massive sell-off from offshore investors stems from the dimmed expectations of the US Federal Reserve easing its monetary policy stance.

As of Thursday, the CME Group's FedWatch tool indicated a 59.5 percent chance that the Fed will cut the base interest rate at its meeting scheduled for March, sharply down from more than 80 percent at the beginning of this year.

In addition, heightened geopolitical tensions around the world dampened investor sentiment on the local stock market.

“The concerns about the Red Sea strengthened as the US launched attacks against the Yemen-based Houthi rebels. In addition, the geopolitical risk escalated here after President Yoon Suk Yeol vowed to punish North Korea in case of a provocation after the North defined the South as a ‘primary foe,’” said analyst Na Jung-hwan from NH Investment & Securities.

“All these events led to the strengthening of the US dollar and made shares in emerging nations lose their attractiveness,” Na explained.

The latest figures show the Chinese economy is yet to fully pick up, which presents gloomy prospects for Korea, a nation heavily dependent on exports to China. There are also concerns that China could be further excluded from the global supply chain if former US president Donald Trump returns to the White House.

Overseas investors' selling spree even weakened the value of the Korean won against the US dollar as they converted the share proceeds into dollars.

The local currency closed at 1,339 won against the US dollar Thursday, slightly strengthening from the 1,345 won from the opening.

But the longer-term trend has been of a weakening Korean won, as its value dropped by more than 50 won against the dollar in the past two weeks.

The US Dollar Index, which measures the value of the dollar against a basket of six foreign currencies, has surged to mid-103, the highest this year.

Experts say the won will not further lose strength against the dollar as the market continues to project that the US Fed will cut the base rate in the first half of the year.

“The expectations of an early rate cut from the US Fed in March have weakened, but the rate cut is still likely to happen in the second quarter,” analyst Park Sang-hyun from Hi Investment & Securities said. “The won-dollar exchange rate is not likely to surpass 1,350 won, as it did in October.”

By Im Eun-byel(silverstar@heraldcorp.com)