The Korea Herald


Europe accounts for half of foreign selling in Korea


Published : Aug. 15, 2011 - 19:43

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Fitch, S&P to visit Seoul for yearly assessment

Foreign investors pulled investments worth about 5 trillion won ($4.6 billion) out of Korea’s stock market over the past two weeks amid the fiscal woes in Europe and the United States.

Funds from Europe accounted for more than 50 percent of the capital outflow, according to the Korea Exchange and the Financial Supervisory Service.

European investors withdrew 2.74 trillion won from the local market during the first 11 trading sessions of August, while U.S. investors’ net selling stayed at 951.3 billion won.

Luxembourg, a tax-haven with many hot-money managers, was the biggest foreign stock seller, having pulled out 894.5 billion won from the Korea Exchange, followed by France with 605.4 billion won and the U.K. with 447.3 billion won.

Other heavy sellers included funds from Germany, Greece, Italy, Spain, Portugal and Ireland.

Amid their massive selling, the portion of foreigners’ stock holding accounted for 31.65 percent of the total market capitalization on the Korean main bourse as of Aug. 12, down from 32.16 percent from Aug. 1.

A report from the Korea Center for International Finance, which compared the situation with five emerging stock markets of Asia, also shows massive foreign net selling.

Korea ranked second in terms of the amount of net foreign selling, which approached $5 billion during the cited period. The figures followed Taiwan, which saw an outflow of $5.7 billion.

In India, foreigners withdrew a total of $1.32 billion of investments, followed by $540 million in Thailand, $514 million in Indonesia and $117 million in the Philippines.

While Korea is striving to placate foreign investors by informing them of a variety of indices representing “enhanced resilience of the economy,” global sovereign rating companies are scheduled to visit Seoul in the coming months.

According to government officials, Fitch Ratings plans to assess Korea’s fiscal status as early as September to assess the country’s updated sovereign rating.

Standard & Poor’s Financial Services is also considering holding a yearly meeting with the Ministry of Strategy and Finance during the fourth quarter.

S&P has kept their rating of “A” untouched for Korea, respectively, over the past six years.

Though Fitch changed its prospects for Korea from “positive” to “negative” during the 2008 global financial crisis, it has maintained its rating of “A+” for the nation since 2005.

Moody’s Investors Service, which carried out its on-the-spot assessment of Korea in May, is likely to announce its rating in several weeks. In April 2010, it had revised Korea’s rating upward to “A1” from “A2.”

One significant issue that traders are concerned about will be whether Moody’s will reflect the recent turmoil in local stock markets, which were hit by the eurozone debt crisis and S&P’s recent downgrading of the U.S. sovereign rating, coupled with emerging uncertainties about the Korean economy.

By Kim Yon-se (