"Build a Following Strategy for 'Foreigners Buying and Selling'... Approaching Stocks with High Shareholding Ratios Is Effective"

[Asia Economy Reporter Lee Seon-ae] Investment advice emphasizing the need to focus on foreign investors' supply and demand strategies is continuously emerging.

According to Korea Investment & Securities on the 28th, one of the reasons for the weak performance of the Korean stock market this year is the depreciation of the Korean won and net selling by foreign investors. It is easy to observe a high correlation between exchange rates and stock indices in emerging countries. Additionally, the Korean stock index measured in US dollars has fallen to its lowest level since the financial crisis compared to the won-based index, making it reasonable to expect a slowdown in foreign selling. Although the US dollar's strength has weakened, it is premature to anticipate a sustained weakening of the dollar given the possibility of further US interest rate hikes. Expectations that foreign investors, who have continued net selling this year, will rapidly switch to net buying are also premature.

Yeom Dong-chan, a researcher at Korea Investment & Securities, pointed out, "Even though foreign investors have continued net selling, it is more effective to focus on stocks where foreign ownership has risen to this year's highest levels." This means that a strategy following foreign investors remains valid rather than targeting stocks with a gap in foreign investor demand.

With the first-quarter earnings season concluded, the volatility of earnings estimates has also decreased. On a weekly basis, operating profit estimates for the industrials and utilities sectors have been revised upward, while those for consumer discretionary and financial sectors have been revised downward. He added, "The volatility itself is not large enough to be considered a significant change, and these modest changes in earnings estimates are expected to continue until mid-June."

Daishin Securities has focused on oversold stocks with increasing foreign ownership. Recommended stocks include SK Innovation, LG, Ottogi, Samsung C&T, Hyundai Motor, Hyundai Rotem, Samsung SDI, SK Hynix, Kakao, and Samsung Electronics.

Sectors where foreign investors are returning are also of interest. Na Jeong-hwan, a researcher at Cape Investment & Securities, said, "If risks affecting manufacturing-centered emerging countries are resolved, it is necessary to increase exposure to sectors likely to attract foreign investors (semiconductors), sectors benefiting from the resolution of global supply chain disruptions leading to expanded production and delivery (IT hardware, automobiles, transportation), and sectors benefiting from improved operating profit margins due to falling raw material prices (food and beverages)."