Korean investors dump Kospi, flock to US stocks despite strong dollar
An electronic board at Hana Bank's dealing room in central Seoul shows the Kospi, Kosdaq and the won-dollar currency exchange rate (Yonhap)
Losing faith in the local stock market, which has fallen to its lowest point in months, South Korean investors are shifting their focus to US shares. However, the weak local currency may remain a burden for cross-border trading.
While the benchmark Kospi dropped to a low of under 2,400 during intraday trading on Monday, retailers are pouring money into US stocks, betting that the depressed value proposition on home turf is likely to continue.
According to the Korea Securities Depository, local investors traded shares worth $63.49 billion in the US market last month, the highest since the institution started to compile related data in 2011. The previous monthly high was $51.95 billion in July.
Shares of Tesla, influenced by the Trump trade, were the top pick for Korean investors on the US stock market last month, with the transaction volume standing at $7.7 billion.
Meanwhile, investors are dropping their investments in the local stock market. Retail investors offloaded shares worth a net 1.23 trillion won ($856 million) on the Kospi last week.
Considering the rising volatility of the local stock market following President Yoon Suk Yeol’s unexpected declaration of martial law, market watchers project investment flows could veer further toward overseas markets.
At the same time, the dramatic depreciation of the local currency may suppress investor appetite for US shares. The value of the Korean won against the dollar plunged to 1,437 won during intraday trading on Monday.
Data from the Korea Securities Depository show local investors' trading of US shares shrank following the chaos from the martial law announcement.
Korean investors bought US shares worth $1.3 billion on Thursday, marking a 6.4 percent fall from the previous day. On Friday, purchases fell to $1.12 billion, inching down 14 percent. Sales also plunged by 10 percent and 21.3 percent on Thursday and Friday, respectively.
Given the two-day gap due to the time difference in settlement, the figures show investor appetite for US shares declined after Yoon declared martial law.
Market watchers said the weakening local currency against the US dollar could be the reason for the weak appetite for US shares. The won lost value against the dollar, trading at a low of 1,446 won soon after the martial law declaration. It is expected to further fluctuate if the instability continues.
“The won-dollar exchange rate is likely to fluctuate in the 1,400 won range considering that the political chaos is likely to continue with the discussion of Yoon Suk Yeol’s impeachment,” analyst Lee Jae-man from Hana Securities said.
Local investors are also flocking to alternative assets such as cryptocurrencies, seeking lucrative opportunities in the bitcoin rally. The price of bitcoin in Korea dropped to as low as 88 million won after the declaration of martial law as investors dumped their holdings, but it soon recovered to the 130 million won range. It traded at 140 million won as of 2:40 p.m. on Upbit, the country's largest crypto exchange.
The 24-hour transaction volume of the top five crypto exchanges here -- Upbit, Bithumb, Coinone, Korbit and Gopax -- stood at $14.59 billion as of 3:30 p.m. Friday. The amount translates to 20.72 trillion won, almost double the day's volume on the Kospi of 10.48 trillion won.
