[MarketING] Focus on Sectors Attracting 'Foreign Buyer' Inflows

KOSPI Rises for 9 Consecutive Days on Foreign Buying
Foreigners Bet on Won Strength... 3 Trillion Won Net Purchase This Month

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] The KOSPI continued its nine-day winning streak, supported by foreign buying. The index recovered the 2400 level during the session, maintaining its early-year rally. With the dollar's weakness underpinning foreign buying, attention is expected to focus on sectors attracting foreign investment.

KOSPI Rises Nine Consecutive Days Thanks to Foreign Investors Who Bought 3 Trillion Won Since the Start of the Year

On the 16th, the KOSPI closed at 2399.86, up 13.77 points (0.58%) from the previous day. Although it recovered the 2400 level during the session, the late-session gains narrowed, closing just below 2400. The KOSDAQ ended at 716.89, up 5.07 points (0.71%).

The early-year rally of the KOSPI was driven by foreign investors. Except for one day this month, foreigners recorded net purchases in the KOSPI market every day. The net purchase amount reached 3.2206 trillion won. On this day as well, foreigners bought 300.3 billion won in the KOSPI market and 52.5 billion won in the KOSDAQ market, leading the index's rise. Kim Seokhwan, a researcher at Mirae Asset Securities, said, "The KOSPI rose for nine consecutive days due to the improvement in consumer sentiment indicators, the rise in the US stock market, the won's appreciation, and the recovery of risk appetite." He added, "The won-dollar exchange rate fell to the 1230 won level, driving foreign buying."

The dollar's weakness is supporting foreign buying. The won-dollar exchange rate, which fluctuated between 1260 and 1270 won at the end of last year, has dropped to the 1230 won level. On this day, the won-dollar exchange rate in the Seoul foreign exchange market closed at 1235.3 won, down 6.0 won from the previous trading day's closing price. This is the lowest closing level since April 18 of last year.

Choi Kwanghyuk, a researcher at eBest Investment & Securities, said, "The dollar index fell about 8.8% from 112 points last year to around 103 points." He added, "The decline in the dollar index is strengthening expectations for capital inflows into emerging markets."

Factors contributing to the dollar's weakness include easing inflationary pressures and expectations of economic recovery in Europe and China. Lee Jaeman, a researcher at Hana Securities, analyzed, "The US 5-year breakeven inflation rate (BEI) has fallen to 2.2%, approaching the Federal Reserve's target inflation rate of 2%. Meanwhile, the perceived conditions in European manufacturing and service sectors have rebounded, raising the domestic GDP growth forecast by 2 to 3 quarters compared to the US. Additionally, expectations for improvement in China's domestic economy have increased due to big tech companies and easing real estate regulations."

Further Decline in Won-Dollar Exchange Rate Expected... Attention to Sectors with Foreign Buying

Improvements in the Chinese and European economies are expected to lead to further declines in the won-dollar exchange rate. This is because economic recovery in China and Europe is likely to reduce the domestic trade deficit, and the correlation between the yuan and the won remains very high. The researcher explained, "If China returns to the first half of 2021 before real estate regulations, the yuan-dollar exchange rate could fall to 6.5 yuan. Assuming a yuan-dollar exchange rate of 6.5, the won-dollar exchange rate could drop to 1150 won."

There is a need to pay attention to sectors attracting foreign buying. The researcher said, "Among emerging market equity funds, passive funds have seen net inflows for four consecutive weeks recently. Considering the won-dollar exchange rate and passive fund inflows, it is necessary to focus on sectors where foreign net buying remains strong or turns positive in the range where the won-dollar exchange rate falls from 1250 to 1150 won."

However, there are also forecasts that the won-dollar exchange rate will not continue to fall sharply. Researcher Choi said, "There is still room for the exchange rate to decline, so foreign purchases of Korean assets are possible. However, high interest rates will continue, and despite the easing of European concerns that supported the dollar's decline, the eurozone's economic growth forecast remains at -0.1%, making a sharp decline difficult to sustain."

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