This Week's Investment Strategy... Will Foreigners Return to the Domestic Stock Market?

Gradual Recovery Expected in Foreign Buying Demand
Domestic Stock Market Returns Burdened Compared to Global Markets
Profit Outlook Relatively Positive... Expectation of Strengthened Net Foreign Buying

[Asia Economy Reporter Lee Seon-ae] Foreign buying momentum is expected to gradually recover. This is based on the judgment that the continued strong performance of domestic stock returns can lead to an increase in foreign net purchases in the stock market.

According to KTB Investment & Securities on the 24th, the flow of emerging market equity funds in equity-type funds has been improving significantly since November last year. In January, the weekly net inflow volume is recovering to the level before the outbreak of the novel coronavirus disease (COVID-19) a year ago. The strong inflow of global liquidity into emerging markets is reflected in the strengthening of foreign net purchases in related stock markets. The foreign net purchase volume in 12 emerging countries has recorded net purchases for three consecutive months until January after surging to 500 million dollars on November 25 last year.

By emerging country, a relative gap in foreign net purchases is observed. Foreign net purchases are prominent in India (19.5 billion dollars from November to January), Taiwan (9 billion dollars), and Brazil (14 billion dollars), whereas Korea has been leaning towards a wait-and-see stance in foreign trends except for November last year (4.7 billion dollars during the same period).

The biggest reason is price burden. Since November last year, when the rally began in earnest, the KOSPI return has recorded 39%. Although global stock markets have shown a simultaneous rally based on expectations of economic recovery and continued policy effects, the strong performance of the domestic stock market stands out among them. During this period, the KOSPI return achieved 20 percentage points and 15 percentage points compared to developed and emerging countries, respectively. The rapid rise of the KOSPI in a relatively short period of 3 to 4 months is the biggest reason that makes foreign buying momentum hesitant to flow into the domestic stock market.

However, since the strong performance of the domestic stock market compared to the global market has a fundamental basis of securing a clear comparative advantage in terms of earnings momentum, it is judged that there is little need to perceive the delay in foreign net purchase inflows, which may be limited to a certain period, as a burden.

Regarding the earnings growth forecast of major countries in 2021, most countries, especially developed countries, are expected to see high earnings growth based on the COVID-19 base effect in 2020. On the other hand, differentiated earnings forecasts stand out in Asian emerging countries such as Korea, Taiwan, and India, where the strong corporate earnings growth in 2020 continues into 2021. In particular, Korea is expected to show the most remarkable corporate earnings growth among major countries during this period, with KOSPI net profits recording +25% and +48% in 2020 and 2021, respectively.

Park Sun-hyun, a researcher at KTB Investment & Securities, said, "The KOSPI return has been 10.0% (as of the 21st) this year, still ranking among the global top following last year," adding, "Relative price burden is an inevitable reality, but since this strong performance is based on improved earnings forecasts, there is no need to be concerned only about relative price burden. Foreign trends are also expected to switch to strengthening net purchases in the domestic stock market if the continued improvement in earnings momentum can be confirmed."

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