October 30, 2024

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South Korean investors are turning their attention to foreign stocks, with local shares continuing to yield disappointing results amid the benchmark Kospi’s lack of long-term movement.

The nation’s benchmark Kospi index inched up nearly 7 percent from the beginning of the year as of May 16, but is moving at a snail’s pace compared with other major global indexes.

It was just last month that the US’ S&P 500 and Nasdaq Composite closed at record-high levels, buoyed by reports of 3.2 percent growth in the world’s largest economy for the first quarter. Japan’s Nikkei 225 and Eurozone’s Euro Stoxx 50, both counterparts to Kospi, grew nearly 23 percent and 14 percent respectively in the same period.

“For some time now, the local stock market has shown volatility, but not the kind that would produce fruitful results for local investors,” Sung Hye-jung, head of the communication team at Kiwoom Securities, told The Korea Herald on May 16.

“The overseas stock market has been a somewhat exclusive field for wealthier investors, but recently, with platforms for online stock transactions continuing to expand, more and more individual investors have taken interest in the market,” Sung added. 

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According to recent data from the Korea Securities Depository, Korean investors purchased about 7.5 trillion won ($6.4 million) worth of foreign stocks in the first quarter. This is nearly a 25 percent increase from the fourth quarter of last year.

Noting the growing interest in the overseas market, local brokerages have been expanding foreign stock services for their clients.

Samsung Securities said last month that its clients had invested a total of 1.8 billion won in overseas assets, including foreign stocks and bonds, during the first quarter of the year. Investment in foreign stocks amounted to 13 percent of total investment, the firm said. 

The firm said the average rate of return for overseas assets amounted to 9.43 percent in the same time frame -- nearly double the 4.88 percent rate for Kospi stocks.

“With the prolonged rate reverse between the US and Korea alongside the low chances of a US rate hike, investors have been eyeing foreign assets with a higher yield than local products,” said Park Tae-geun, an analyst at Samsung.

‘MAGA’ boom

US stocks outpaced those of foreign rivals in terms of popularity among local investors, boosted by the current benchmark rate of 2.25-2.5 percent.  

According to the KSD, Korean investors traded US stocks worth $2.07 billion in April alone, up 29.9 percent on-year. They purchased US stocks worth $1.12 billion in the same period, up 38.8 percent.

Korea’s base rate, 1.75 percent, is far lower than the 2.25 to 2.5 percent benchmark in the US.

US stocks accounted for a majority, 67.4 percent, of all overseas stock transactions by Korean investors. Stocks from Hong Kong followed at 16.1 percent, Chinese stocks at 7.9 percent, Japanese stocks at 6.1 percent and European stocks at 0.1 percent.

The most popular options were Microsoft, Amazon, Google parent Alphabet and Apple, often dubbed “MAGA” by global investors, echoing US President Donald Trump’s 2016 campaign slogan. They reportedly have a combined market value of nearly 4 trillion won at the moment, which exceeds the combined value of half of the S&P 500 companies. Amazon’s share price stood at $1,871.15 as of Thursday, having increased almost 20 percent on-year.

Other household names on the list were US firms such as Nvidia, Tesla, Netflix and Walt Disney.

Analysts say the release last month of the Marvel Studios film “Avengers: Endgame” further fueled local investors’ interest in Disney shares, considering the immense popularity of the franchise in Korea. Marvel Studios is a subsidiary of Walt Disney Studios.

Kospi stalemate to continue

Judging from a May 13 note released by Morgan Stanley projecting that the Kospi will move within the 1950-2150 range until the US-China trade war is resolved, the index still has a long way to go before it is on the road to a solid recovery.

Foreign investors investing in Kospi stocks have also been losing interest in the market, with analysts alarmed by the speed of capital outflow. From May 5-14 overseas investors net sold 951.4 billion won worth of Kospi shares. Ha In-whan, an analyst at Meritz Securities, called it the largest volume of short-term capital outflow since the start of the year.

The Kospi’s lackluster performance is expected to continue to push Korean investors toward foreign stocks, but experts warn that prospective investors, especially those without institutional aid, should carry out extensive research on the destination country’s culture and consumer patterns before making any moves. Short-term volatility caused by currency fluctuations is another key factor to consider, they say.

By Jung Min-kyung/The Korea Herald (mkjung@heraldcorp.com)