Korea’s foreign sell-off heaviest in Asia

Overseas investors sell stock in response to inflation fears but not thought as part of long-term trend


Foreign investors pulled out the biggest amount of capital from Seoul stocks in Asia this month, reversing earlier snap ups on inflation fears.

The selling spree was part of a regional outflow as investors fled to rebounding advanced economies, away from continued monetary tightening in emerging economies, analysts said.

“The outflow from equities should be seen as a short-term phenomenon due to inflation fears in the region as a whole. More capital is actually coming into equities, if you look at the wider context,” Lee Sang-won, a strategist at Hyundai Securities told The Korea Herald.

“Part of the outflow went to advanced economies on positive economic data, but their recovery will come around to support trade-dependent, emerging markets like Korea.”

Foreign investors sold a net of 2.44 trillion won ($2.17 billion) from Seoul stocks in the first 11 days this month, which exceeds foreign selling in Taiwan, Thailand, and India combined.

Foreigners sold a net of $714 million in Taiwan, $212 million in Thailand and $88.6 million in India in the same period. Foreigners were net buyers in Indonesian stocks with a net purchase of $54.3 million.

While demand for safety will prompt investors to reduce their holdings of emerging market equities, the move should be seen as a healthy reshuffling of investments that recently stayed concentrated in Asia for its higher-yielding assets.

“Most investment banks, except for Nomura, stay bullish for the Korean market although they expect the rate of return to wind down from last year,” Korea Center for International Finance said in its Monday report.

“But if inflationary pressure stays in the region, it would reduce foreign investment and push down general investor sentiment,” it said.

The Bank of Korea unexpectedly left the seven-day repurchase rate at 2.75 percent even after the January inflation figure recorded 4.1 percent, breaching the central bank’s 4 percent ceiling.

The split decision, however, made economists confident about a raise in March.

“The central bank will probably resume raising interest rate in March. It (February rate review) was a close call, but we thought that it’s more likely for them not to raise this time and pause and signal a hike later in March,” Kwon Goo-hoon, an economist at Goldman Sachs was quoted as saying.

Monetary tightening gathered steam in the region after China increased its key interest rate for the third time in four months last week, a sign that policymakers are concerned about surging prices.

Korea’s producer prices rose to a 26-month high in January on stoking agricultural and farm products, bolstering the case of further consumer price increases at retailers.

The producer price index, indicating price movements at retailers, increased 6.2 percent in January from a year ago, recording a steeper pace from 5.3 percent posted in December, the Bank of Korea said Friday.

The central bank’s monetary policy committee said they expect high inflations to continue and inflationary pressure to also persist as the economic upswing continues.

Seoul is also nudging to cut prices in oil refining and the telecommunications industry. The Finance Minister Yoon Jeung-hyun on Thursday called for reform of oligopolistic industries to increase competition and make more rooms for price cuts.

By Cynthia J. Kim (cynthiak@heraldcorp.com)