S Korea equities

South Korea will lift a five-year ban on short-selling financial stocks on Thursday to boost trading activities as market conditions have improved this year on strong foreign buying, reports the FT’s Song Jung-a in Seoul. 

When foreign investors cough, South Korea’s stock market catches a cold, local analysts say. Research notes issued by foreign brokerages are increasingly affecting stock prices of major Korean companies as foreign investors own nearly a third of South Korea’s stock market.

The growing influence of foreign brokerage reports were recently highlighted by plunges of stock prices in Samsung Electronics and SK Hynix, after JP Morgan and Credit Suisse issued “sell” reports on the companies respectively. 

Are foreign investors returning to South Korea? A bit, but don’t get carried away.

Korean investors had something to cheer on Thursday as the market joined the global equities rally on easing concerns about the Federal Reserve rolling back its stimulus measures. Foreign investors turned net buyers of Korean stocks for the first time in 14 sessions, pushing the benchmark Kospi index 2.9 per cent higher to 1,834.70. 

After more than 50 years of monopoly, the Korea Exchange will finally have a competitor. The government will allow new rivals to take on the nation’s stock exchange from August 29.

The Financial Supervisory Commission, the country’s financial watchdog, said it will allow securities firms with equity capital of more than Won20bn ($11m) to set up alternative trading platforms for stocks and depositary receipts. 

They all cost money

South Korea’s state pension fund is entering riskier waters as it plans to allocate more funds to equities while reducing the weighting of bonds to boost investment returns.

Expansion into riskier assets has become inevitable for the National Pension Service to meet growing public pressure to boost its returns amid concerns that the fund could face a shortfall in coming decades with Korea one of the world’s fastest-ageing societies. The fund is targetting a 6.1 per cent annualised return over the next five years. 

South Korea’s tech-heavy junior bourse Kosdaq is on a roll. Investors are turning their attention to smaller firms as the country’s new government is keen to support small and mid-sized enterprises as part of a policy of sustainable economic growth.

The Kosdaq, the Korean equivalent of Nasdaq, had been in the doldrums for years since the index hit a high 841 points in July 2007 before the global financial crisis. But it has staged a strong comeback in recent months on the belief that SMEs could benefit from the growing political pressure on big family-run conglomerates. 

The recent war rhetoric from North (and South) Korea might make for geopolitical tension, but how much notice do the markets take?

Rating agency Moody’s have put together a chart that gives a good account of previous market reactions, and an idea of what to expect this time. 

Like the boy who cried “wolf”, it seems North Korea is not getting much attention – at least from investors – by setting off nuclear explosions. The world’s only hereditary Communist dictatorship carried out its third nuclear test on Tuesday to worldwide diplomatic outrage but also to blank stares of indifference from South Korea’s financial markets. 

South Korean President-elect Park Geun-Hye, of the Ruling Saenuri Party waves to supportersDoes the presidential election matter in South Korea’s stock market? The equity market showed a muted reaction to Wednesday’s election but there were winners and losers – especially in construction and insurance.

Overall, the benchmark Kospi index gained 0.32 per cent to near 2,000 points, but the gains were limited as Park Geun-hye’s election victory was overshadowed by renewed concerns about the US fiscal cliff. 

Hyundai cars 2012Investors of Hyundai Motor have a good reason to be unhappy these days: South Korea’s largest automaker has been excluded from the recent stock market rally.

Concerns over the stronger won versus the weaker yen have weighed on the shares as the currency rate is feared to take a toll on Korean exporters. The Japanese yen has fallen to a 20-month low as Japan’s Liberal Democratic Party returned to power, calling for “unlimited” monetary easing. 

Despite North Korea’s growing military threat, South Korean investors appear to be full of euphoria as the country’s stock market hit the highest level in two years and a half on strong foreign buying.

The benchmark Kospi stock index closed above the psychologically-important 2,000 level on Thursday, as foreign investors were net buyers for 11 consecutive days, purchasing a net Won2.3tn ($2.1bn) of Korean shares. The index has gained nearly 10 per cent so far this year, driven by Samsung Electronics, which has jumped 45 per cent to a record high of Won1.5m on booming smartphone sales. 

A “highly provocative act that threatens regional security“, as the US described North Korea’s rocket launch, might be expected to give investors a bit of a jolt, or at least an excuse for a quick bit of profit-taking.

But it seems not. South Korea’s Kospi 100 index was up around 0.6 per cent on Tuesday, having made solid gains in the last month. 

Analysts and bankers are warning that South Korea could weaken volumes in its equity derivatives market, one of the world’s largest, with a planned transaction tax on options and futures.

Seoul’s ministry of strategy and finance announced on Wednesday that it planned to introduce a tax of 0.001 per cent on the value of futures contracts linked to the Kospi 200 index of the largest Korean stocks, and a levy of 0.01 per cent on the premiums for options. It expects annual revenue of $89m from the tax, which will be introduced in January 2016.

If you look at Samsung Electronics and Hyundai Motor, South Korean companies do not appear to be feeling the pinch of Europe’s debt crisis and the slowing global economy. But a deeper look at the rest of corporate Korea tells a different story.

Despite the global economic slowdown, Samsung’s operating profit surged 79 per cent to $5.9bn in the second quarter on the back of booming sales of its smartphones while Hyundai Motor reported an 18 per cent jump in second-quarter operating profit to Won2.5tn. But excluding the two companies, combined operating profits of 129 listed Korean companies plunged 44.6 per cent in the second quarter from a year earlier and their combined net profits shrank 59.2 per cent, according to market researcher FnGuide. 

The toughest task in being an analyst in Korea seems to be to put a “sell” call on a stock. You have to be extremely brave to tell your clients to sell their shares in a company, according to Korean analysts.

The numbers bear that out. According to statistics from Korea Financial Investment Association, there was only one “sell” recommendation last year out of about 80,000 research reports. Analysts rated most Korean stocks they cover as a “buy,” issuing “buy” recommendations on more than 80 per cent of stocks.