Foreigners Leaving China Returning to Korea... KOSPI Rise Expectations Up↑

Possibility of Foreign Inflow Turning Positive After 5 Months
From China and India to Korea and Taiwan... Detecting Changes in Capital Flows Within Emerging Countries
Countries with Large IT and Export Shares Benefit from US Economic Recovery

[Asia Economy Reporter Minwoo Lee] Foreign capital has returned to a net inflow trend after five months, leading the KOSPI's rise. This is interpreted as a result of growing expectations for the recovery of the IT-centered manufacturing sector and trade improvement. While foreign capital is flowing out of China and India, it is flowing into South Korea and Taiwan, signaling a change in foreign capital flows within emerging markets and raising expectations for further gains.

On the 10th, IBK Investment & Securities forecast that the KOSPI's upward trend would continue as foreign capital flows in. Since the beginning of this month until the 8th, foreigners recorded net purchases for six consecutive trading days, buying a total of 2.3255 trillion KRW worth of stocks. This is the longest consecutive net buying streak since November last year (from the 5th to the 24th). This contrasts with last month, when net buying occurred on only four trading days. It marks a supply-demand shift after about five months.

From China and India to South Korea and Taiwan... Changes in Foreign Capital Flows

Changes are being detected in Asian emerging markets. Like South Korea, Taiwan has seen net inflows of foreign capital this month after experiencing outflows in the first quarter. Conversely, China and India, which had steady foreign capital inflows during the first quarter, have experienced net outflows this month. Analysts emphasize the need to closely watch the potential changes in foreign capital flows within emerging markets.

So-eun Ahn, a researcher at IBK Investment & Securities, analyzed that these changes reflect expectations for the recovery of manufacturing, including IT, and trade conditions. This is because a clear difference can be observed in the economic and stock market structures of South Korea and Taiwan compared to China and India. In South Korea and Taiwan, exports and the IT sector's share in the stock market are much higher relative to GDP than in China and India. In fact, from the beginning of this month until the 8th, the top two foreign net purchases on the KOSPI were both domestic semiconductor "blue-chip" stocks: Samsung Electronics (1.1245 trillion KRW) and SK Hynix (466.9 billion KRW). Samsung Electronics alone accounted for more than four times the net purchases of Kakao (262.5 billion KRW), ranked third, and ten times that of Kia (115.2 billion KRW), ranked fourth.

Advantages in Corporate Profits and Economic Indicators... Limited Impact from COVID-19 Spread

The relative advantages of South Korea and Taiwan are also visible in corporate profits and economic indicators. Their 12-month forward earnings per share (EPS) are rising sharply, not only compared to the entire emerging market but also relative to China and India. The manufacturing Purchasing Managers' Index (PMI) trends show a similar pattern. While China and India have shown sluggish trends since the end of last year, South Korea and Taiwan have maintained an upward trajectory. Although direct comparisons between countries are not appropriate due to differences in internal survey methods, the directional differences are already evident.

The current COVID-19 situation and exchange rates are not considered decisive factors. In India, where the domestic market has a relatively large share, the recent resurgence of COVID-19 could act as a factor reducing investment attractiveness. Meanwhile, although South Korea is seeing an increase in new cases enough to be cautious about a fourth wave, the impact on the stock market is limited because exports outweigh domestic demand. Researcher Ahn stated, "Regarding exchange rates, the strengthening of the US dollar since the beginning of the year has been a burden for emerging markets overall, but there is no clear correlation between recent changes in foreign capital flows by country and changes in the real effective exchange rate."

Focus on Accelerated Recovery of US Demand... Strong Recovery Expectations

There is a forecast to focus on the accelerated recovery of US demand going forward. Foreign capital inflows into South Korea and Taiwan are expected to continue, supporting the KOSPI's upward trend. The movement of foreign capital within Asian emerging markets is based on strong recovery expectations for IT manufacturing and export sectors, and a key variable is the favorable US demand. Researcher Ahn explained, "As reflected in economic forecasts by major institutions such as the International Monetary Fund (IMF), the US economy is expected to be very strong this year due to stimulus measures and the effects of COVID-19 vaccines."

There are still lingering COVID-19 impacts on US consumption and production. The consumer inventory component of the Institute for Supply Management (ISM) manufacturing index is at its lowest level since the COVID-19 outbreak. Ahn explained, "Despite various income support policies continuing since last year, consumers have focused on increasing savings and depleting existing inventories rather than new consumption expenditures," adding, "As a result, manufacturers' inventory-to-shipments ratios remain low." When US consumption fully recovers, it will lead to increased new manufacturing orders and imports, supporting the recovery of manufacturing and export sectors in South Korea and Taiwan.

The conditions for the recovery of US consumer demand are already in place. The key driver is the $1.9 trillion (approximately 2,130 trillion KRW) stimulus package passed in March. Among the stimulus measures, the distribution of disaster relief payments of up to $1,400 per person is being implemented most rapidly, with over 90% already disbursed as of the 7th. Researcher Ahn noted, "Compared to Europe and other regions, the US shows less sign of COVID-19 resurgence, and mobility indicators are rising, allowing the real economy to gradually normalize," adding, "The large amount of cash distributed will begin to be reflected in consumption indicators starting in April."

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