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South Korean retail stock investors ‘at risk’ from foreign selling spree

An electronic board at the trading room of a Hana Bank branch in Seoul shows Kospi gained 0.5 percent to close at 3,158.93 points, ending its eight-day losing streak Wednesday. (Yonhap)
An electronic board at the trading room of a Hana Bank branch in Seoul shows Kospi gained 0.5 percent to close at 3,158.93 points, ending its eight-day losing streak Wednesday. (Yonhap)
The routine of South Korean retail investors picking up massively offloaded shares by foreigners has continued since last week, but experts have been raising concerns over growing risks of their buying spree if the market remains bearish for a while.

According to the Korea Exchange Wednesday, offshore investors pushed for a selling spree Tuesday for a sixth consecutive session since Aug. 9 on the nation’s main bourse market, dumping a net 7.46 trillion won ($6.38 billion).

They offloaded shares of two local chipmaking giants -- Samsung Electronics and SK hynix -- worth a net 6.04 trillion won and 1.96 trillion won, respectively, in the cited period as well. Following their continuous net sales, the benchmark Kospi fell to the 3,100-point level. It closed lower for an eighth straight session Tuesday, which was the longest losing streak since Aug. 28-Oct. 11, 2018.

Foreigners have been dumping shares due to growing concerns over a myriad of factors that include an early tapering by the US Federal Reserve, a slowdown in global economic recovery, the rise of the delta variant and the prolonged global semiconductor shortage, according to analysts. Retail investors may face bigger risks in managing their portfolio because sell-offs by foreigners may continue until the actual tapering takes place.

“What makes the market condition serious is that different effective factors occur all at the same time now,” said Lee Eun-taek, a market strategist at KB Securities. “Foreign investors’ additional net sales and further market correction are expected during summer. Foreigners are likely to continue dumping local shares at least until the actual tapering action occurs.”

Lee added, “It is uncertain when retail investors could keep their buying spree (if the market slump continues).”

Although market insiders and experts have sounded the alarm, their warnings seem to have fallen on deaf ears as retail investors remained strong buyers, net purchasing from both the Kospi market and tech-heavy Kosdaq market for a seventh consecutive session from Aug. 6 to Tuesday.

It was the first time for small domestic investors to continue a buying spree for the seventh day in a row since Feb. 16-24. During the recent net purchases this month, they scooped up a net 9.69 trillion won from Kospi and 1.41 trillion won from Kosdaq, up by more than 4.79 trillion won from their strong buying in February.

Retail traders bet big on Samsung Electronics and SK hynix, snapping up a net 6.35 trillion won and 2.1 trillion won, respectively, over the cited period. They also bought 383.1 billion-won worth of Samsung Electronics’ preferred stock.

Following the massive net purchase, the total amount of loans taken out for stock investments by individuals crossed the 25 trillion-won mark for the first time as of Friday, up 933.2 billion won from 24.2 trillion won notched a week ago, Korea Financial Investment Association data showed. The figure stood at some 25.47 trillion won as of Tuesday.

NH Investment & Securities senior researcher Oh Tae-dong noted that the pattern of retail traders moving in the “exact opposite direction” of the market has recurred.

“Unlike foreign investors, individual investors tended to sell their stock when indexes rise, but buy shares again when indexes fall,” Oh said. “Foreign investors often decide whether to buy or sell local shares strongly in sync with advanced markets’ trends. ... While both US and Korea stock markets are forecast to enter a correction territory in the fourth quarter, foreigners are expected to dump their shares much later.”

Meanwhile, Kospi snapped its losing streak Wednesday, thanks to institutional investors’ net purchase. The index closed at 3,158.93, up 0.5 percent from the previous session’s close. It started off slightly weak and trade mixed in morning trade but institutions’ net purchase worth 409.5 billion won hoisted the index, while retail investors joined net selling along with offshore investors.

Kosdaq also advanced 0.99 percent to close at 1,021.08 points. The secondary index also began trading lower and once plunged below the 1,000 point-mark for the first time since June 17. Although individual investors turned net sellers, foreign and institutional investors scooped up 180.8 billion won and 37.3 billion won, respectively.

By Jie Ye-eun (yeeun@heraldcorp.com)
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