UK 'SelKorea' US 'BuyKorea'

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hwang Junho] Amid various uncertainties shaking the Korean stock market, such as inflation and the Russia-Ukraine war, an analysis has emerged that long-term foreign investment funds are flowing into the domestic stock market.

According to Yuanta Securities on the 19th, the nationality of foreign investors who predominantly sold stocks in the Korean stock market in the first quarter of this year was the United Kingdom, with a net sale of 5.345 trillion KRW. Luxembourg also sold domestic stocks worth 1.456 trillion KRW. Typically, funds from these countries are presumed to be hedge funds or family offices with a short-term investment nature.

On the other hand, during the same period, U.S.-based funds purchased domestic stocks, with a net purchase of 2.209 trillion KRW. Following were Ireland (573 billion KRW) and Japan (529 billion KRW), which also expanded their holdings. Kim Hoo-jung, a researcher at Yuanta Securities, stated, "U.S.-based funds have a high proportion of mutual funds (public funds) with a strong long-term investment nature," adding, "This will influence the inflow and outflow of global funds."

Recently, the inflow of global funds into Asian (excluding Japan) equity exchange-traded funds (ETFs) has increased, which is expected to also impact the domestic stock market. Since the U.S. interest rate hike in March, emerging market stock markets have been evaluated as undervalued compared to advanced markets such as the U.S., leading to capital inflows into emerging market funds.

Researcher Kim explained, "Among global funds, the main types that primarily invest in Korea are emerging market equity funds and Asian (excluding Japan) equity funds. As the proportion of Russia decreases, there is a possibility of an increase in the investment proportion in Korea, which had not expanded significantly in the long term."

Within emerging market equity funds, the proportion of China has been continuously decreasing since the second half of 2020 due to intensified conflicts between the U.S. and China and growing concerns about the economy. Russia’s share also sharply declined from 7.1% at the end of last year to 0.2% at the end of the first quarter of 2022 due to economic sanctions resulting from the Ukraine war. Due to the impact of economic sanctions, it is unlikely that Russia’s investment proportion will recover quickly. Regarding Korea’s share, it has maintained around 10% since the second half of 2020, suggesting that Korea could be an alternative to China or Russia, according to researcher Kim’s outlook.

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