1. Recent trends in the stock market
The KOSPI index, which once fell to a low point of 1,923.30 on March 15 after the Japanese earthquake, has rebounded to a record-high of 2130.43 on April 5, renewing the highest point of 2,115.69 prior to the earthquake.

The recent recovery in stock prices is mainly attributed to foreigners’ net buying based on their optimism that the Korean economy is relatively stable amid ongoing external uncertainties such as Japan’s earthquake and political turmoil in the Middle East.


2. Foreign investors’ movement in Korean stock exchange

Foreigners sold KRW 3.5 trillion in February, the biggest net sale by monthly basis since May 2010, but made net buying of KRW 1.2 trillion in March: notably, net buying of KRW 2.8 trillion after the Japanese earthquake.

(By country)

Starting this year, there has been a continued outflow of European funds (including the U.K), reflecting ongoing uncertainties in the European region. By contrasts inflows of funds from the U.S. and Asian region have been increasing since March.

*As of March, the U.S made a net purchase of KRW 1.3 trillion, Singapore of KRW 0.7 trillion, China of KRW 0.2 trillion
*Despite our concern of Japanese capital being pulled back, Japanese made a net purchase of KRW 155 billion instead

(By fund-type)

In February, all foreign investors except for Asian sovereign funds were net sellers. Starting March, however, the U.S. funds began to make net buying in large volume. Net buying by foreign investors was mostly made after Japan’s earthquake, and European investors (excluding European funds) also turned net buyers of Korean stocks.

(By investment period)

It has turned out more than half of foreign net buying made after the Japanese earthquake was made by short-term investors. (i.e. investment banks)

*Short-term: IB with investment turnover ratio over 500%


3. Grounds for foreign investors’ net buying

Without wider spread of risk from the recent Japanese earthquake and the regional conflict in the Middle East, global economy is showing signs of recovery especially in the United States where 2010 fourth quarter growth rose from 2.8% to 3.1%(announced by the Department of Commerce), consumer spending rose by 0.7% in February from the previous month to 3.28, and employment rose in March in non-agriculture sector by 216,000, higher than previous forecast of 190,000.

Particularly, it is worth noting that Korea received counter benefits from the Japanese earthquake through foreign buying being concentrated on Korea’s stock market, more so than other emerging market indices, due to positive expectation for Korea’s export market.

The exodus of foreign capital from Global Emerging Market (GEM) funds and Asia ex-Japan funds that occurred during February made a turnaround in March as investors moved away from safe haven and concentrated their investment on GEM funds related to Korea.

There also seems to be an expectation of foreign exchange profit as the level of won’s currency appreciation towards the U.S. dollar has been much lower than other currencies.

*Please read the attached file for details.