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Local investors selling off local stock funds en masse

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Was a little alarmed to be honest when I saw this today but looks like my stocks are doing fine….for now.  Investment tips in Korea are always welcome!

Local investors selling off local stock funds en masse
Foreign investors are expected to buy considerable amounts of local stocks from April 7 to 19

» A bank clerk employee explains details of an investment fund to potential clients.

On Tuesday, Cho Jin-su (not his real name), a 42-year-old resident of Seoul, sold his local stock fund valued at 50 million Won ($44.5 thousand) that he initially signed on for in June of 2008. This is because of his painful experience of watching the KOSPI rise to 1750 only to later to fall to the 900 level. His final earnings rate was 5 percent. He said it seems the stock prices might rise again, but thinking over his missed opportunity to sell last year, it thought it was time to sell. Seeing news reports that it seems the timing of the coming interest rate hike will be delayed, he has decided to invest the money he made from selling his funds in bonds that pay monthly interest.

The Situation

With stock prices settling at the 1700 line, a situation is developing in which local funds are being sold en masse. In the first two days of April alone, over 1 trillion Won in stocks were sold, with sales for the month already roughly equal to the entire month of March (1.86 trillion Won). At the start of the year and last September, with stocks just about to break the 1700 line, there were daily sales of 10 to 20 billion Won, but never before have there been single days in which 50 billion Won in stocks are sold, as is the case now.

Reasons
The desire on the part of investors to make back their principal is strong. Most of these investors bought into funds after 2007, when funds were hot, and experienced the crash in stock prices. By stock index range, the greatest amount, 9.7 trillion Won, was invested into stocks in the 1800 to 1900 range, followed by 8.59 trillion in the 1900 to 2000 range and 5.50 trillion in the 1700 to 1800 range. Some 636.8 billion Won was also invested into stock over the 2000 line. This is the reason it appears fund selling will increase as the stock prices go up. Merrill Lynch researcher Park Hyeon-cheol said South Korean investors are patient when they are in the red, but their patient wears thin when they are up in numbers. Last September and in January of this year, the investors who should have gotten out of the red numbers but did not are now selling in concentration.

Trends

The mass selling of funds is naturally detrimental to the stock market. An important reason that stock prices are sidling along even though corporate earnings and prospects both look good is the scale of selling of personal funds. It also has an impact on the real economy. Kim Cheol-bae of Korea Financial Investment Association (KOFIA) said the money that should be playing a productive function through the stock market, which serves as companies’ window for raising capital, is fleeing funds, leading to short-term immobilization. He said they are looking for measures such as plans to grant benefits to long-term investors. On the other hand, there are also those, such as Park from Merrill Lynch, who said if you view the selling as something that needed to be done because funds were too hot, it could be a positive phenomenon.

Outlook

The reason stocks are settling at 1720 despite the mass sale is because foreign buyers have been able to accept the total. Foreign buyers will reportedly engage in a buying spree of local stocks from April 7 to 19. Kim Hak-gyun of Daewoo Securities said he thinks the capital flow from funds would continue until stocks crossed the 1800 line and other factors show more optimism.

Some are optimistic, noting that compared to foreign companies, the price-earning ratio of local companies is much lower. Kim Cheol-bae said South Korean firms are proving their competitiveness and recovering faster from the financial crisis than those of other nations, so the selling of funds by local investors, unlike foreign investors, was to miss new investment opportunities.

Please direct questions or comments to [englishhani@hani.co.kr]

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Written by recruiterinkorea

April 8, 2010 at 2:39 pm

Posted in Uncategorized

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