Storm Buying: Foreign Investors Target 'Semiconductors, Finance, and Automobiles'

Net Buying Exceeds 8 Trillion Won in Domestic Stock Market This Year
Preference for Large-Cap Stocks... KOSPI Net Purchase of 8.0767 Trillion Won
Semiconductors Judged at Bottom of Industry and Earnings... Bank Stocks Valued for Shareholder Return Policies

[Asia Economy Reporter Hwang Yoon-joo] Foreign investors have continued net buying in the domestic stock market this year. The buying trend is particularly evident in large-cap stocks (KOSPI). Notably, the semiconductor, finance, automobile, and battery sectors ranked high in net purchases. This is interpreted as showing interest in sectors that can generate profits in emerging markets amid volatility in the U.S. stock market.

According to the Korea Exchange, from January 2 to February 9, foreign investors net purchased 8.97 trillion KRW in the domestic stock market. This contrasts with individuals and institutions who net sold 6.5893 trillion KRW and 2.0536 trillion KRW, respectively.

Foreign investors mainly focused on large-cap stocks. They net purchased 8.0767 trillion KRW in the KOSPI market alone. Meanwhile, individuals and institutions net sold 6.2556 trillion KRW and 1.9373 trillion KRW, respectively, in the KOSPI.

The top 10 stocks by foreign net purchases can be summarized as semiconductor, finance, automobile, and battery sectors. In order, they were ▲Samsung Electronics ▲SK Hynix ▲Samsung SDI ▲EcoPro BM ▲Hyundai Motor ▲Shinhan Financial Group ▲EcoPro ▲Hana Financial Group ▲LG Energy Solution ▲Kia. Narrowing down to KOSPI, the top three stocks remained unchanged, and from fourth place onward, the order was ▲Hyundai Motor ▲Shinhan Financial Group ▲Hana Financial Group ▲LG Energy Solution ▲Kia ▲KB Financial Group ▲LG Chem. Preferences for semiconductor, battery, automobile, and finance sectors were clear even within KOSPI.

Despite an earnings shock, the semiconductor sector's investment sentiment in emerging markets appears to have expanded. Samsung Electronics' operating profit in Q4 last year dropped 69% year-on-year to 4.3061 trillion KRW. This is the first time in over eight years that quarterly operating profit shrank to the 4 trillion KRW level. SK Hynix recorded an operating loss of 1.7012 trillion KRW, marking a return to quarterly losses for the first time in about ten years and worse than the expected loss of 1 trillion KRW. The sector was hit hard by decreased demand and falling semiconductor prices.

However, Samsung Electronics announced plans for 'natural production cuts' through line rearrangement and production efficiency improvements, leading to expectations of a rebound in the memory semiconductor market in Q4 this year. As the price attractiveness of the domestic semiconductor sector became prominent, Samsung Electronics and SK Hynix ranked first and second in foreign net purchases, respectively.

Hwang Min-sung, a researcher at Samsung Securities, explained, "The Q4 results of Samsung Electronics and SK Hynix are records not seen in the past decade. As a cyclical industry, the judgment is that buying now carries a very low risk of loss, so profit-taking expectations have led to net buying." He added, "Until last year, the U.S. stock market performed relatively well, but with the stock prices of Nvidia and Tesla fluctuating, investors turned their attention to emerging markets. Among emerging markets, they focused on the Korean semiconductor industry, which is unlikely to fail, and seem to intend to hold for more than two years expecting significant returns."

It is also notable that financial holding companies such as Shinhan Financial Group, Hana Financial Group, and KB Financial Group ranked high in net purchases. This is evaluated to be influenced by the financial authorities' shift in dividend regulations and shareholder return campaigns. Researcher Kang Seung-geon of KB Securities said, "Expectations for improved shareholder returns and the impact of the won-dollar exchange rate declinehave attracted foreign buying," adding, "Statements by financial authorities about dividends at the end of last year and the actions of the private equity fund Align Partners also had an impact."

The Financial Supervisory Service announced at the end of last year that it would guarantee autonomy regarding dividend policies if banks maintain appropriate capital adequacy ratios. Alongside this, Align Partners sent an open letter at the beginning of the year urging seven major financial holding companies to introduce shareholder return policies. This demand for shareholder return measures targeted the entire sector rather than individual companies, drawing market attention.

KB Financial Group was the first to respond. It announced plans to purchase treasury shares worth 300 billion KRW over three months for cancellation purposes. The dividend payout ratio for 2022 is 26%, but the shareholder return rate, including treasury share cancellation, rises to 33%. The group aims for a minimum common equity tier 1 capital ratio of 13% and intends to actively pursue shareholder returns unless there are special reasons.

In the battery sector, amid U.S.-China supply chain conflicts, it has been identified as a beneficiary of the U.S. Inflation Reduction Act (IRA), leading to recent stock price gains. Although the automobile sector faces negative demand conditions and price variables, favorable performance is expected through increased sales volume and cost stabilization. Like the financial sector, shareholder return policies are also highlighted as an attractive factor.

Song Seon-jae, a researcher at Hana Securities, said, "Hyundai Motor's treasury stock cancellation (2,136,000 common shares and 633,000 preferred shares, 1% of issued shares) is positive from a shareholder return perspective," adding, "Preferred shares with a high dividend yield of over 8% defend against stock price declines, and the structure allows upside potential along with common shares, making it a good investment alternative."