Foreign investors have targeted the South Korean stock market in their recent capitalization of equities amid concern over some developed countries exiting monetary easing.
Amid predictions of weaker growth for emerging economies due advanced countries’ tighter monetary policy, foreigners net-sold stocks worth $3.22 billion on the Korean bourse over the past week.
A certain portion of research analysts, however, are betting on longer-than-expected monetary easing in the U.S. and other major countries to maximize the effects of ongoing policies to boost the economy.
Stock analysts including Kwak Hyun-soo of Shinhan Investment Corp. downplayed the possibility that Washington would move toward tighter monetary policy this month.
They forecast that the start of their exit strategy, led by the U.S. Federal Open Market Committee, would be the fourth quarter of this year.
The figure for foreign dumping in Korea nevertheless far surpassed stock disposal on bourses in other major emerging countries.
Over the past five trading days, India saw overseas investors’ net-selling reach $265 million, Thailand, $491 million, Taiwan, $1.03 billion and Indonesia, $1.18 billion.
Over the past three months, Korea also saw greater dumping of stocks with cumulative net-selling of $7.09 billion.
During the Seoul gathering of the 2013 Institute of International Finance Asia CEO Summit in May, KB Financial Group chairman Euh Yoon-dae stressed that each country’s leaders should push for close coordination, warning against exit policies.
“Should developed countries unexpectedly adopt an exit strategy (from Asia) upon world economic recovery, Asian emerging markets could be vulnerable to a sudden stop in capital flows, where currently large capital inflows would be followed by massive outflows,” Euh said.
Bank of Korea governor Kim Choong-soo also predicted that tightening by the Federal Reserve Board, the European Central Bank, the Bank of England and other major central banks could take place either simultaneously or in succession.
If interest rates in advanced countries rise due to exit strategies going forward, then losses on holdings of advanced country bonds could be seen, Kim told the participants.
“As the foreign funds that had been flowing in suddenly reverse, loans could turn sour from the drop in collateral value, and liquidity crunches could hit our markets,” he said.
By Kim Yon-se (firstname.lastname@example.org