Cautious Seohaek Ants... Eyeing ChatGPT and China's Reopening

Alphabet and MS Rank 1st and 2nd in Net Purchases... AI Investment Increases Amid ChatGPT Boom
More Stocks Sold Than Bought Since Last Month Due to Interest Rate Hike Concerns

As concerns over interest rate hikes reignite, foreign investors in Korean stocks are reshaping their portfolios. Tesla, which saw a buying frenzy last January, has been boldly sold off, while investors are selectively boarding themes related to ChatGPT and China's reopening (resumption of economic activities).

According to the Korea Securities Depository's SaveRO on the 7th, the most purchased overseas stocks by investors from the 1st of last month to the 3rd of this month were Alphabet (?189.1 billion) in first place and Microsoft (?166.3 billion) in second. This is interpreted as a result of the AI chatbot 'ChatGPT craze' that began at the end of last year extending into the AI market.

The stock that first attracted buying momentum was Microsoft. The public release of OpenAI's ChatGPT led to net buying. Moreover, when Microsoft, which invested ?1.3 trillion in 2019, announced plans to invest an additional ?13 trillion this year to dominate the AI market, investors' buying interest grew even stronger. Microsoft's stock price has risen more than 6% since the beginning of the year.

In the case of Alphabet, the announcement early last month of Bard, a competitor to ChatGPT, stimulated investor sentiment. Although Bard, released on the 8th of last month, failed to meet investors' expectations and was evaluated as less advanced than ChatGPT, investors have not removed Alphabet from their watchlists. Given that Alphabet owns the unparalleled search engine Google, there is a belief that if AI chatbot technology is integrated into the search engine, Alphabet could benefit even more. Kim Joong-han, a researcher at Samsung Securities, stated, “Although there may be short-term concerns about a decline in search engine market share, considering ChatGPT's operating costs and Google's unique search engine competitiveness, the actual possibility of replacement is limited.”

Among the top net purchases by foreign investors in Korean stocks, new names benefiting from China's reopening also appeared, such as the Breakwave Dry Bulk Shipping ETF (BDRY) and the Direxion Daily CSI China Internet Companies 2x Leveraged ETF (CWEB). The net purchase amounts were ?40.1 billion and ?26.4 billion, respectively. BDRY is an exchange-traded fund (ETF) that tracks the BDI (Baltic Dry Index), which reflects the market conditions of bulk carriers mainly transporting raw materials and grains. The BDI index has risen more than 60% since last month due to increased raw material trade from China's reopening, attracting foreign investors' attention. Lee Won-joo, a researcher at Kiwoom Securities, analyzed, “The BDI index has a high correlation with China's coal and iron ore imports. If expectations for China's real estate regulation easing policies grow, the index could rise further.” CWEB is also believed to have attracted buying interest due to expectations of stock price increases in big tech companies following improved consumption in China. However, recent issues with unmanned airships (balloons) have reignited trade disputes between the U.S. and China, which seems to have somewhat dampened foreign investors' investment momentum.

Tesla, which foreign investors 'love,' did not make it into the top 10 rankings. Since Tesla's stock price has risen nearly 90% since the beginning of the year, more investors have taken profits. It is also presumed that the lack of news to excite investors at Tesla's Investor Day on the 1st, and the absence of mentions about half-priced electric vehicles, contributed to this.

From Net Buying to Net Selling in One Month... "Stock Market Volatility Will Increase"

As fears of interest rate hikes grow again, the overall buying strength of overseas stock investors has weakened. Since last month, there has been a net selling of about ?265.4 billion. The purchase amount was ?18.4325 trillion, but the selling amount was larger at ?18.6929 trillion. Just a month ago in January, investors showed a buying preference, purchasing overseas stocks worth ?1.0733 trillion, but have since switched back to net selling. This is due to the disappearance of hopes for interest rate cuts and renewed anxiety over the direction of interest rates. Overseas stock investors have shown a tendency to reduce buying strength whenever the direction of U.S. interest rates becomes unclear. Investors who showed net buying of ?300 billion in October and ?530 billion in November last year sold off more than ?520 billion worth of stocks in December.

One reason foreign investors turned to net selling is that key economic indicators in January exceeded expectations. With personal consumption expenditures rising above market forecasts and retail sales and dining service revenues increasing sharply, expectations grew that the U.S. Federal Reserve (Fed) would intensify interest rate hikes. Despite the Fed's denial, the market, which had reflected hopes for rate cuts, is now raising its expectations for the terminal rate. While in January it was expected that the March Federal Open Market Committee (FOMC) meeting would see the last rate hike of the year, opinions now converge on 25 basis point (1bp=0.01 percentage point) rate hikes in March, May, and June. The terminal rate is expected to be around 5.25?5.5%.

Experts believe that the strong economic indicators in January will not continue into February. The January consumption boom is analyzed as a temporary consumption stimulus effect due to increased disposable income from tax benefits. Hwang Soo-wook, a researcher at Meritz Securities, said, “Even looking at the BEA's weekly credit card transaction data, the momentum from automobile and dining service card sales that caused the January consumption surprise is slowing down,” adding, “Most of the increase in disposable income was spent in January, so the consumption deferral effect is unlikely to be significant.”

Although concerns about interest rate hikes may subside, experts agree that a cautious approach is necessary. Lee Kyung-min, a researcher at Daishin Securities, said, “Even if the dollar's strength eases amid increasing pressure from inflation and monetary policy variables, conditions for stock price rises are not necessarily created,” and added, “Since U.S. bond yields are determining the direction of financial markets, until a downward stabilization of bond yields is confirmed, global financial markets will continue to experience unstable fluctuations.”

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