[Click eStock] "Domestic Stock Market, China Differentiation Begins... Net Inflow of Foreign Capital"

Hi Investment & Securities diagnosed on the 6th that the domestic stock market, which had been unable to escape the shadow of China risk, has begun to differentiate itself from China. Amid growing expectations for the domestic stock market due to corporate value-up programs, there is a trend of net inflow of foreign capital.

The Shenzhen Composite Index experienced a panic session, plunging 6.7% intraday before closing down 3.93%. The Shanghai Composite Index also closed down 1.02%. The Shanghai and Shenzhen indices fell for six and seven consecutive trading days, respectively.

Park Sang-hyun, a researcher at Hi Investment & Securities, said, "At the beginning of the trading session, news came out that former President Trump would impose a 60% tariff on Chinese products if he were elected," adding, "Investor sentiment was already weakened by Trump noise, and the decisive trigger for the sharp market decline was disappointment over the stock market stimulus measures."

He continued, "Although Chinese authorities announced they would take measures to boost the stock market, the lack of concreteness in the stimulus plan and the expectation that the measures would mainly focus on large-cap stocks fueled a fierce sell-off centered on small- and mid-cap stocks, exacerbating the market plunge."

He further pointed out, "Some are raising the bottoming theory for the Chinese stock market, but due to concerns over the Chinese economy, signs of prolonged real estate market stagnation, and risks related to former President Trump's election, it is expected to be difficult to find short-term momentum for a rebound in the Chinese stock market."

In this situation, the fact that the Korean stock market, which had previously shown strong synchronization, is now differentiating itself from the Chinese stock market is seen as positive. In particular, funds that have exited China are also flowing into Korea. In fact, over three trading days until February 5, the net purchase volume of foreigners in the domestic exchange market reached 3.159 trillion KRW, approaching the January net purchase volume of 3.4828 trillion KRW.

Researcher Park said, "Although the domestic stock market has not been able to follow the strong rally of the U.S. stock market, the differentiation from the Chinese stock market is strengthening thanks to expectations for corporate value-up programs and net foreign purchases of domestic stocks," emphasizing, "Above all, the expansion of net foreign purchases of domestic stocks despite instability in the Greater China stock markets is considered somewhat unusual."

He added, "What is noteworthy is that funds that had been flowing into other emerging markets excluding Korea seem to be flowing into Korea recently," explaining, "Although the domestic economy has not shown a strong rebound, signs of improvement in the export cycle centered on semiconductors are emerging, and coincidentally, the corporate value-up program aligns well, leading to an expansion of foreign purchases of domestic stocks."

He cautioned, "However, if the instability of the Chinese economy and stock market prolongs, the differentiation from the domestic stock market may weaken again," adding, "At the same time, for the continued net foreign purchases of domestic stocks amid de-China funds, it seems ultimately necessary to have clear signals of a full recovery in the domestic economy and corporate fundamentals."