Chinese stock connect fuels Korean investors' appetite

A growing number of South Koreans have invested in the Chinese stock market after a bourse link scheme began six months ago, but rising concern over a bubble has made them rethink their next move, market watchers said Friday.  

South Korean investors traded 6.87 trillion won ($6.26 billion) worth of Chinese shares for six months after the Shanghai-Hong Kong stock connect was launched on Nov. 17 to allow foreigners to directly invest in mainland Chinese stocks, according to the data compiled by the Financial Supervisory Service (FSS).

Their net buying amounted to 1.25 trillion over the period.

Investors cautiously put their money in the first month to mark 279.4 billion won in turnover, and they became more active in the following months to push up the transaction amount to 2.61 trillion won in the fifth month.

The fever has recently lost steam, however, after Chinese securities regulators in mid-April issued warnings over a bubble in local equities and tightened rules on margin lending. The trading volume fell to 1.56 trillion won and logged 12.6 billion won in net selling in the sixth month, the financial watchdog said.

The Shanghai Stock Exchange Composite Index, the mainland benchmark index, rose 74 percent and Hong Kong's Hang Seng Index gained 14.5 percent six months following the launch of the trading scheme. South Korea's benchmark index KOSPI rose 8.3 percent in the same period.

Market watchers say Korean investors preferred railway and construction shares after Beijing's cross-border investment and development initiative, called "One Belt, One Road", raised hope for the Asian giant's fresh growth momentum.

"Korean investors bought theme stocks related to railway and construction industry that were expected to benefit from the 'One Belt, One Road' initiative," Jun Jong-kyu, a researcher at Samsung Securities, said. "Large-cap stocks in health care and insurance sectors with growth potential also enjoyed popularity."

Analysts were positive about more openness in the Chinese capital market with another connect program with Shenzhen exchange scheduled later this year, while some remained wary that Chinese shares are losing steam following a sharp rally in a short period of time.

"The Chinese market is not a fully open market, which is heavily swayed by the government policy. Investors should review their portfolios after checking Beijing's upcoming economic policy and corporate earnings," said Park Sung-hyun, a strategist at Hanwha Investment & Securities. "The Chinese market has entered a stage that needs caution as it has shown signs of overheating." (Yonhap)