To Bring Foreign Investors Back to the Korean Stock Market... "Oil Price Rebound Is Essential"

Foreigners Sold Over 9 Trillion Won for 12 Consecutive Trading Days
Impact of Oil Prices on Korean Stock Market Greater Than China's Economic Slowdown or Global Economic Contraction

Source=Cape Investment & Securities

[Asia Economy Reporter Minwoo Lee] With foreigners continuing net selling for 12 consecutive trading days, over 9 trillion won has been withdrawn from the domestic stock market. Analysts suggest that a rebound in oil prices is a prerequisite to prevent such capital outflows.

On the 22nd, Ban Inseong, a researcher at Cape Investment & Securities, stated, "Factors such as the possibility of an economic downturn in China due to the novel coronavirus infection (COVID-19), the potential global economic contraction following the World Health Organization (WHO)'s pandemic declaration, and the sharp drop in international oil prices have acted as negative factors for major countries' stock markets." He added, "As COVID-19 spreads worldwide, the factors affecting the domestic stock market have shifted, and in particular, the recent sharp decline in oil prices has acted as a trigger increasing the intensity of foreigners' net selling."

Cape Investment & Securities measured sectoral sensitivities to the three factors mentioned above and analyzed the relationship with returns by dividing the period into after the occurrence and after the spread of COVID-19. As a result, in the early stage of occurrence (January 20?31), stock price declines did not show a clear relationship with sensitivities to the three factors, and statistical significance was also low. The greater the sensitivity to individual factors, the larger the decline in returns, with the influence of the China factor slightly greater than that of the world and oil factors.

On the other hand, after the pandemic was declared and oil prices fell (February 19?March 17), stock price declines showed a clear relationship with all three factors. In particular, the impact of the oil price decline was the most significant. Sectors with low oil sensitivity fell on average more than 5 percentage points more than those with high sensitivity.

As the COVID-19 crisis prolonged, foreigners' selling pressure in the domestic stock market intensified. Net selling has continued for 12 consecutive trading days since the 5th. During this period, foreigners net sold a total of 9.1538 trillion won. Researcher Ban explained, "This selling trend appeared in sectors sensitive to China, the global economy, and oil, among which oil was decisive."

In fact, cumulative foreign net selling relative to sector market capitalization was 0.01% in the bottom 20% sectors by oil sensitivity, while it was 0.69% in the top 20% sectors. Ban said, "Since 2010, due to the declining trend in global trade volume, price effects have had a greater impact than quantity effects in the stock market." He explained, "As COVID-19 spreads worldwide and international oil prices sharply fall, both price and quantity effects are entering a new phase of contraction." He added, "The economic shock of COVID-19 is likely to prolong global economic contraction, and further declines in stock indices due to panic selling by foreigners seem inevitable. At a time when central banks and governments around the world are announcing stimulus measures, the key factor that can reverse foreign selling is a rebound in oil prices."

This content was produced with the assistance of AI translation services.