Foreign investors have shown a renewed interest in Korean stocks, putting an end to a four-month period of net selling. In November, offshore investors purchased a net worth of 4.68 trillion won ($3.6 billion) worth of shares on the Seoul stock market, signaling a positive shift in market sentiment. This trend is expected to continue as Korea prepares to remove a long-standing regulation, making it easier for foreign investors to access the stock market.
The buying spree primarily focused on chip stocks, with Samsung Electronics and SK hynix being the major beneficiaries. Samsung Electronics accounted for 2 trillion won, while SK hynix captured 679 billion won of the total value of shares purchased. This surge in buying activity is largely attributed to the anticipation surrounding the upcoming regulatory change, which will take effect on December 14th.
The current regulation, which requires foreign investors to register with authorities before trading local stocks, has faced criticism for hindering foreign investments and deviating from global standards. The new rule aims to address these concerns by allowing offshore investors to open accounts with internationally accepted identification, such as passports for individuals and legal entity identifiers for institutions.
Analysts believe that the easing of regulations will attract more international investors to the Korean stock market, especially with the positive outlook for semiconductor stocks. In addition, the potential extension of the rate pause by the U.S. Federal Reserve has also contributed to the interest from foreign investors. Fed Chair Jerome Powell recently stated that it is premature to determine if the Federal Reserve has achieved its desired policy stance, signaling the possibility of future rate cuts.
Furthermore, the U.S. interest rate, which currently stands at a higher range than Korea’s rate, has raised concerns about foreign investors seeking safer investment options. However, an extended rate pause or even a rate cut next year could encourage capital inflows to the Korean market.
In conclusion, the expectation of regulatory changes and potential monetary policy adjustments have sparked a renewed interest from foreign investors in Korean stocks. This presents an opportunity for further market growth and demonstrates the attractiveness of the Korean stock market to international investors.
Frequently Asked Questions (FAQ)
1. What triggered the return of foreign investors to Korean stocks?
Foreign investors have returned to Korean stocks due to the anticipation of regulatory changes that will make it easier for them to access the market. Additionally, the positive outlook for semiconductor stocks and the potential extension of the rate pause by the U.S. Federal Reserve have contributed to the renewed interest.
2. Which stocks were the major beneficiaries of the buying spree?
The buying spree focused primarily on chip stocks, with Samsung Electronics and SK hynix being the major beneficiaries. Samsung Electronics accounted for 2 trillion won, while SK hynix captured 679 billion won of the total value of shares purchased.
3. What is the current regulation that hinders foreign investments in Korean stocks?
The current regulation requires foreign investors to register with authorities before trading local stocks. This has been criticized for obstructing foreign investments and deviating from global standards.
4. When will the new regulation take effect?
The new regulation is set to take effect on December 14th, 2021. It will remove the requirement for foreign investors to register with authorities, allowing them to open accounts using internationally accepted identification.
5. How might potential rate cuts by the U.S. Federal Reserve impact foreign investments in the Korean stock market?
If the U.S. Federal Reserve implements rate cuts, it could encourage foreign investors to seek investment opportunities in the Korean stock market. A lower interest rate differential between the U.S. and Korea would make Korean stocks relatively more attractive.
(Source: Korea Exchange – www.krx.co.kr)