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FOREIGN INVESTORS KEEP SELLING SURGING KOREAN STOCKS

Foreign investors have sold $50 billion worth of Korean stocks year to date, even as the Kospi has surged nearly 80%.

They're not overlooking the eye-popping performance of Korean equities, according to HSBC, which points out in a Monday note that fact 90% of those outflows come from SK Hynix 000660.KS and Samsung Electronics 005930.KS. This suggests the problem is funds having to avoid excessive single-name concentration. Shares in the two chip-makers are each up well over 100% this year.

HSBC say this could create structural challenges for Korea as if "equities continue to outperform, funds will find it increasingly difficult to add exposure, reinforcing a cycle of forced selling and enlarging underweight positions even amid strong fundamentals."

The National Pension Service has a similar problem, as its domestic equity allocation has risen above this year’s target allocation of 14.9% plus/minus 5% though it has said it will avoid "mechanical selling."

However, none of this seems to be a problem for the market, since HSBC say domestic investors have absorbed all the foreign selling. Sentiment remains firm, and the use of leverage is at a new high.

One thing to watch is that regulators also recently approved the listing of single-stock leveraged ETFs on the local exchange. HSBC say this could further accelerate flows into leveraged products.

(Alun John)

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