Foreign investors are expected to move out of the Korean stock market due to the financial crisis in Argentina. Although Korea’s economic fundamentals are considered to be more robust than those of other emerging countries, foreign investors have sold their shares in Korea for four consecutive days since the outbreak of the new crisis.
On January 28, they net sold 314.7 billion won (US$294.2 million) worth of shares in the Korean stock exchange. Their net selling amounted to 520 billion won (US$485 million) on the previous day as well, which is the highest amount since the beginning of this year. They sold over one trillion won of shares during the recent four sessions, and the sales reached 1.7 trillion won (US$1.6 bilion) between the first trading session of this year and January 28.
Experts are pointing out that the disinvestment is somewhat different in nature from that shown when the Fed began to discuss the tapering of the quantitative easing policy in earnest late last year. At that time, foreign investors took a great portion of their funds out of Southeast Asia, causing emerging stock markets to plummet. During the one month after the announcement of the tapering, China lost 6.42%, and Brazil and Turkey slid 5.66% and 4.83%, respectively. However, the Korean stock market was not affected that much.
Nevertheless, the latest crisis in Argentina is posing severe concerns to Korea as well. The ratio of foreign investors is particularly high in the Korean bourse, and thus a staggering blow could be delivered to it if conditions are wrong. In November last year, the market capitalization owned by foreign investors added up to US$382 billion, or 35.64% of the market cap, surpassing the 35% mark in six years.
Besides, the short-term debt of the country is estimated at around US$111.5 billion as of the third quarter of 2013, according to the Bank of Korea, although the amount is showing a gradual decline. This means that their disinvestment and the demand for debt redemption based on financial instability in emerging countries could result in an unfavorable turn of events.
Financial experts are predicting that the withdrawal of investment would be limited, though. Their consensus is that Korea’s strong economic fundamentals, characterized by the record high foreign exchange reserves of US$345 billion and a continuous trade surplus, will appeal to global investors.
“Korea is still very attractive in that it can be relatively free from the tapering issue,” said Hyundai Securities Research Analyst Bae Seong-yeong, adding, “An explosive buying spree could follow as in last year, if a turnaround is found in the form of improved business figures and the like.”