Foreign Investors Return on Third-Quarter Earnings Hopes: What Are They Buying?

"Evergrande Issue Unlikely to Spread to Emerging Markets"
Foreign Investors Record Six Consecutive Days of Net Buying in KOSPI Since September 13
Nearly 1 Trillion Won Worth of Samsung Electronics Purchased

[Asia Economy, Reporter Jin-Yeon Jin] Foreign investors, who have been net sellers so far this year, switched to net buying this month. This shift is attributed to growing expectations for third-quarter earnings of domestic companies, prompting experts to recommend paying close attention to the foreign investors' shopping lists.

According to the Korea Exchange on September 24, foreign investors made net purchases totaling 1.1171 trillion won in the KOSPI market and 137.6 billion won in the KOSDAQ market, amounting to a combined 1.4322 trillion won so far this month. Notably, in the KOSPI, they recorded six consecutive trading sessions of net buying since September 13. Except for April, when they were net buyers of 385.7 billion won, foreign investors have been net sellers every month. Therefore, if this month's net buying trend continues, it will mark the fourth month of net buying since the COVID-19 pandemic began.

Even on the previous day, when concerns over the potential bankruptcy of China’s second-largest real estate company, Evergrande Group, were expected to trigger a sharp market decline during the Chuseok holiday, foreign investors continued to buy Korean stocks, helping to defend the index. This is evidence that they viewed the likelihood of the Evergrande issue spreading to emerging markets as low. Park Sang-Hyun, a researcher at Hi Investment & Securities, said, "Although the liquidity risk surrounding Evergrande has not been resolved, foreign investors are showing net buying in the domestic stock market because they believe the credit risk stemming from Evergrande is unlikely to spread to neighboring Asian countries."

The heightened expectations for third-quarter earnings of domestic companies have also fueled foreign investors' buying momentum. According to the financial investment industry, the third-quarter operating profit estimate for KOSPI-listed companies has been revised upward to approximately 63 trillion won. There is also a strong possibility that the export growth trend, which began in November last year, will continue for an eleventh consecutive month.

The U.S. tapering issue, which has recently weighed on the stock market, is already reflected in the market. Furthermore, with the U.S. Federal Open Market Committee (FOMC) on September 22 (local time) clarifying its stance on the timing and scale of tapering, there are expectations that foreign investors' buying spree could continue. Lee Jaeseon, a researcher at Hana Financial Investment, stated, "With the initial disappearance of factors that have caused uncertainty in the domestic stock market, we believe this is a period where additional inflows of foreign investor buying are valid," adding, "It is important to pay attention to the sectors that are attracting foreign investors’ interest."

From September 13 up to the previous day, foreign investors bought the largest amount of Samsung Electronics. According to Hana Financial Investment’s analysis of sectors that have seen upward revisions in third-quarter operating profit estimates but have shown low returns since mid-September, these include semiconductors, IT home appliances, transportation, and healthcare.