"Foreigners' Love for Korean Stocks Continues"
International Finance Center Report... Net Buying Trend Expected to Continue Amid Domestic Investment Environment Improvement
As domestic investment conditions improve, there is a forecast that foreigners' net purchases of domestic stocks and bonds may continue for the time being.
According to the 'Status and Outlook of Foreigners' Domestic Securities Investment' report by the International Finance Center on the 8th, foreigners have been making large-scale net purchases of domestic stocks and bonds since November last year.
From August to October last year, foreigners made net sales of 8.1 trillion KRW (stocks -6.4 trillion KRW, bonds -1.7 trillion KRW) in the domestic securities market. This is analyzed to have been influenced by the sharp rise in U.S. Treasury yields and the strong dollar at the time.
However, from November last year to January this year, they made net purchases of 15.1 trillion KRW (stocks +11.2 trillion KRW, bonds 3.9 trillion KRW). This is interpreted as being driven by improvements in the semiconductor market and expectations of interest rate cuts.
In the domestic stock market, foreigners continue net purchases centered on the electrical and electronics sector, including Samsung Electronics and SK Hynix, due to expectations of a semiconductor cycle recovery. From November last year to January this year, foreigners made net purchases of 5.9 trillion KRW in the electrical and electronics sector within the KOSPI. Other sectors also saw net purchases of 3.6 trillion KRW.
In the bond market, short-term bonds are experiencing outflows, while medium- to long-term bonds maintain a net investment flow. Since the beginning of this year, as expectations for an early rate cut by the U.S. Federal Reserve have weakened, long-term interest rates both domestically and internationally have rebounded.
Nevertheless, foreigners are analyzed to have continued net investment in won-denominated bonds mainly in medium- to long-term bonds. In the case of short-term bonds, outflows have continued since June last year due to reduced arbitrage incentives. On the other hand, medium- to long-term bonds maintain net investment flows due to expectations of interest rate declines and favorable returns after effective currency hedging.
The report expects foreigners' net purchases in the domestic securities market to continue for a while. Kwon Dohyun, head of the Capital Inflow and Outflow Analysis Department at the International Finance Center, said, "Investment conditions for emerging markets are expected to improve due to the transition of major countries' monetary policies following progress in disinflation," adding, "The Korean market is also in a positive situation due to the rebound in the semiconductor cycle and expectations of a base rate cut by the Bank of Korea."
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However, the timing of a soft landing of the U.S. economy and the Federal Reserve's rate cuts are considered variables. These two variables could cause significant fluctuations in foreigners' capital inflows and outflows. Kwon explained, "If the U.S. economy continues a stronger-than-expected trend, the Federal Reserve's rate cuts may be delayed," and "there is also a possibility that the decline in bond yields and the weakening of the dollar may fall short of market expectations."
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