[Good Morning Stock Market] On the Last Day of November, Foreigners Threw a 'Selling Bomb'... Will It End as a One-Time Event?

[Asia Economy Reporter Oh Ju-yeon] On November 30, the last trading day of the month, the domestic stock market declined as the MSCI (Morgan Stanley Capital International) index change issue came to the forefront. According to the MSCI regular changes announced on the 11th of last month, Korea's weighting in the MSCI Emerging Markets Index was reduced by 0.27 percentage points, Kuwait was newly included in the Emerging Markets Index, and India's weighting was expanded. This rebalancing led to a large volume of foreign selling. Foreign investors, who had swept up 7 trillion won worth of stocks in the KOSPI market from November 2 to 27, may be turning to selling again after a month. However, there are analyses that this was merely an event due to rebalancing and not a signal of capital outflow, while some opinions suggest that foreign selling will not end as a one-time event, focusing attention on the direction of foreign investors on the first day of December.

[Image source=Yonhap News]

◆ Seo Sang-young, Kiwoom Securities Researcher = Considering that about half of the 2.4 trillion won net selling by foreigners on November 30 was executed during the closing call auction, MSCI index rebalancing is the main factor behind the index adjustment. However, it is noteworthy that most global stock markets continued to adjust, so this factor alone cannot explain the situation. Ultimately, along with rebalancing, the desire to realize profits after the sharp rise in November was a major cause of the selling pressure.

Meanwhile, the U.S. stock market closed with a reduced decline centered on the Nasdaq, which had fallen nearly 1.5% at one point, due to strength in Apple, whose earnings are expected to improve. Overall, the market reacted by focusing on earnings.

Therefore, the Korean export-import trends to be announced today are expected to attract attention. If exports remain solid, buying demand is likely to flow in amid expectations of improved earnings for export-oriented companies.

Korean exports in November face concerns about demand slowdown due to a surge in new COVID-19 cases in the U.S. and Europe, but the flow continues where Asian exporting countries fill the gap caused by inventory reduction and sluggish industrial production activities in these regions, so good results can be expected. If exports exceed market expectations, buying demand for export-related companies is likely to flow in, overcoming the previous day's adjustment.

However, international oil prices are under pressure due to uncertainty over whether the OPEC (Organization of the Petroleum Exporting Countries) meeting will agree to a three-month extension and news of the resignation consideration of the Joint Ministerial Monitoring Committee (JMMC) chairman. The decline in international oil prices could negatively affect foreign demand and supply.

Considering this, the Korean stock market is expected to start flat depending on export-import results and then change according to foreign investors' movements.

◆ Han Dae-hoon, SK Securities Researcher = Is the heavy foreign selling on the 30th a signal of foreign capital outflow? It needs to be observed further, but currently, the possibility is low. The background for foreign capital returning to the KOSPI after November includes the easing of U.S. political uncertainty due to the election of U.S. President Joe Biden and the high attractiveness within emerging markets. These two factors are still valid. Although there are criticisms that earnings estimates for India and Taiwan among Asian emerging markets have been revised upward more steeply than Korea, the upward revision of domestic companies' earnings estimates continues.

The 12-month forward net income estimate for the KOSPI is 130 trillion won, a 3.4% increase from 126 trillion won last month. With expectations of earnings improvement led by the semiconductor sector, the domestic stock market remains attractive to foreign investors. Since the won's strength continues, it seems unlikely that this is a signal of a trend capital outflow.

◆ Lee Kyung-min, Daishin Securities Researcher = It is difficult to assert that foreign selling is a one-time event. This is because the U.S. futures index declined, foreign selling appeared in the Taiwan stock market last weekend, and foreign investors sold both spot and futures. Ultimately, the results of important economic indicators announced at the end and beginning of the month will determine foreign investor sentiment and the direction of the foreign exchange market. It is important how much the results meet expectations amid anticipated month-on-month weakness.

The KOSPI confirmed how strong an upward trend it can show when expectations for corporate earnings improvement, the won's strength, and foreign net buying coincide through the strong market in November. It is considered a preview of 2021.

However, amid the burden and fatigue accumulated from the short-term sharp rise, signs of small cracks may stimulate short-term volatility, so this possibility should be kept open.