Foreigners’ Return Propels South Korea Market Cap to Record High

(Bloomberg) -- Foreign investors have returned to South Korea, helping to boost the value of the nation’s stock market to a record amid optimism U.S. policies will become more predictable under a new leader.

The market capitalization of the benchmark Kospi reached 1,703 trillion won ($1.5 trillion) on Wednesday, Korea Exchange said in a statement. Including the tech-heavy Kosdaq, Korea’s equity market has a value of 2,032 trillion won.

Foreign investors have bought Kospi shares for six straight days since Nov. 5, the longest buying streak since January, in the period leading up to Joe Biden’s victory in the U.S. presidential election. In total, they have purchased a net 3.2 trillion won during the six days that ended Thursday.

The rebound is a good sign for a market that has seen foreigners pull out $21.6 billion this year, the largest outflow from the region outside Japan.

Korean stocks have been hurt during the U.S.-China trade war, with the benchmark Kospi underperforming MSCI Asia Pacific Index every year between 2017 and 2019. In May 2019, Korea was the biggest loser among Asian markets. The Kospi slumped 17% in 2018, the biggest annual loss since 2011.

With about two-thirds of South Korea’s semiconductor exports going to China, some analysts are optimistic that a Biden administration will have a tough but less aggressive stance toward the world’s second-largest economy.

In addition, rising bets that the dollar will keep weakening under Biden are pushing traders to flock to emerging-market assets, said Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong. Korea accounts for 11.9% of the weighting of the MSCI Emerging-Markets Index.

“The trend in EM equity flows has been some massive inflows into China and mostly outflows elsewhere,” he said. “Now, you see some diversification toward other parts of EM, because of the belief that the U.S. dollar will weaken and so there is a need to diversify assets.”

While a stronger won due to a weaker greenback is normally negative for Korea exporters, the demand for emerging markets should support the nation’s stocks, according to Paul Choi, an analyst at CLSA. He recommends investors buy shares of Samsung Electronics Co., Hyundai Motor Co. or LG Chem Ltd.

©2020 Bloomberg L.P.