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Korean Stocks' Foreign Influx: A New Wave of Investment

AInvestTuesday, Dec 3, 2024 3:19 am ET
2min read


Foreign investors have been pouring into the Korean stock market, with the biggest daily inflow since August 2023. This surge in investment can be attributed to several factors, including the country's robust export growth, a strong tech sector, and undervalued opportunities in under-owned sectors like energy. Data from the Korea Exchange Information Data System reveals that foreigners recorded a net purchase of 22.995 trillion won (approximately $17.033 billion) in the Korean stock market in the first half of 2023.

Among the top companies bought by foreigners, Samsung Electronics, SK Hynix, and Hyundai Motor stood out, with net purchases of 7.9971 trillion won, 3.8034 trillion won, and 3.4541 trillion won, respectively. These companies' strong fundamentals, innovative products, and growth prospects have contributed to their appeal among foreign investors. The 'Buy Korea' trend among foreigners is evident, with foreign ownership ratio by market capitalization recovering to the average level since 2010.

Recent geopolitical tensions and global economic trends have significantly influenced the surge in foreign investment in the Korean market. Amidst a global reallocation of manufacturing investments, U.S. companies are increasingly investing in South Korea, driven by its robust semiconductor industry and strong export growth. This trend aligns with the expectations of foreign investors, who anticipate the 'value-up program' and rebound of the semiconductor sector, further bolstering their confidence in the Korean market. Moreover, the Korean stock market's underperformance compared to major countries and the 'Buy Korea' trend among foreigners contribute to the growing foreign interest in Korean stocks.

Market liquidity and regulatory changes are key drivers behind the recent surge in foreign investment inflows into the Korean stock market. According to the Korea Exchange Information Data System, foreigners recorded a net purchase of 22.995 trillion won (approximately $17.033 billion) in the Korean stock market in the first half of this year, the highest since August 2021. This influx can be attributed to several factors, including improvements in market liquidity and regulatory changes.

Firstly, the Korean stock market has seen an increase in market liquidity, with the foreign share of the KOSPI market capitalization rising to 35.63% by the end of June 2023, up from 32.72% at the beginning of the year. This enhanced liquidity has attracted foreign investors, as it facilitates easier entry and exit from the market. Moreover, the "Buy Korea" trend, driven by global fund money re-entering the market, has further boosted foreign investment inflows. According to the International Finance Center, the net inflow into the Korean stock market was 6.4009 trillion won, compared to 2.78% for Taiwan and 6.25 billion dollars for China.

Secondly, regulatory changes have played a significant role in attracting foreign investors. The establishment of a Foreign Investment Ombudsman inside the Korea Trade-Investment Promotion Agency (KOTRA) has addressed foreign investors' concerns, while President Yoon Suk Yeol's "de-regulation" policy aims to align ROK regulations with global standards. Additionally, the revision of the U.S.-Korea Free Trade Agreement (KORUS) has secured U.S. investors' broad access to the ROK market, providing a transparent international arbitration mechanism.

In conclusion, the recent influx of foreign investment in the Korean stock market is driven by improved market liquidity and regulatory changes. These factors have created an environment conducive to foreign investment, encouraging a balanced portfolio approach that combines growth and value stocks. As the Korean economy transitions into a recovery phase in 2024, investors can expect positive changes in corporate performance and shareholder rights protection, further enhancing the attractiveness of the Korean stock market.
Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.