Stock market to brace for foreign selloffs

With international oil prices forecast to rise in the long-term and the effects of monetary easing waning in advanced economies, foreign investors are expected to soon become net-sellers of Korean stocks from net-buyers, according to the Korean Center for International Finance on Thursday.

Several external risks are looming that will eventually lead foreign investors to offload their Korean stock holdings.

The continued deadlock in talks on production between OPEC and non-OPEC oil producing economies, a slowdown in China and the U.S. Federal Reserve’s expected rate increase are some of the risks weighing down Asia’s fourth-largest economy.

“Given that foreign stock investors are sensitive to external rather than internal risks, Korea needs to review the latest economic situations in major economies and (prepare for) changes in monetary policies,” said the KCIF in a report.

The net purchase of Seoul stocks by foreign investors reached 1.9 trillion won ($1.6 billion) last month, marking three straight months of foreign stock investment.

However, there are signs that foreigners have been moving away from Korean shares when comparing their purchase data between March and April. In March, foreigners invested 3.4 trillion won in domestic stocks.

Foreign investors had been net-sellers from November last year until January this year, liquidating holdings worth about 13 trillion won.

The Bank of Korea also noted last month that it remained uncertain as to how long foreign stock purchases would continue as most funds that flowed into the stock market were for short-term investments.

The benchmark KOSPI has risen about 10 percent over the last three months, but faces internal risks such as corporate restructuring, layoffs and reduced investments, in addition to external risks, leading many to see May as a “month of stock sales.”

“But expectations for the central bank to lower its base rate and corporate earnings to improve are growing, with external risks such as the Fed’s rate rise and a stronger Japanese yen to have little impact on the stock market,” said Park So-yeon, an analyst at Korea Investment & Securities.

By Park Hyong-ki (hkp@heraldcorp.com)