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Foreign investors net-sold nearly 4.7 trillion won ($5.11 billion) worth of Seoul shares in July alone, being chiefly responsible for bringing the main Korea Composite Stock Price Index down from its historical peak of 2,004.22 reached earlier last week.
On the day the KOSPI reached its record high, foreigners sold 665.6 billion won worth of shares, and continued selling, discarding about 1.36 trillion won for the next two days, which brought the index down by more than 120 points or 6 percent from its earlier peak.
Analysts have come up with various interpretation for this foreign sell-off, and their arguments come down to the theory that the Korean shares are no longer so cheap.
"Recent rally has made the valuation of Korean shares higher than desirable for foreign investors," said Hong Sung-gook, the head of equity research at Daewoo Securities Co.
Seoul shares are now trading at a price multiple of 13.3, nearly close to the developed markets' average of 15, according to Hong.
As the main KOSPI index jumped roughly 40 percent this year, foreign investors were driven by valuation and profit taking pressure, and they are seen selling local shares in preference for cheaper equities elsewhere in the region.
Also, the U.S. sub-prime loan spill and credit market deterioration have made foreign investors more risk-averse, causing them to drop the emerging and developing market shares for safer alternatives like U.S. treasury bonds.
"Earlier last week, it was more about the profit taking. Now we are seeing them exiting the market altogether as the anxiety about general market condition exacerbates," said Lee Sun-yeop, an analyst at Goodmorning Shinhan Securities Co.
Some experts said the Seoul market will see the return of foreign money once the KOSPI drops to lower 1,800. Still others said the market will see their return when the KOSPI is included in the FTSE's developed market index in around September as widely expected.
"If and when the index declines to mid to lower 1,800, the PER will be about 11 to 12, at which we will see foreign investors snapping up the stocks," said Jang Sung-joon, an analyst at Daeshin Securities Co.
"Once the KOSPI joins the FTSE's developed market universe, there will be a complete change of scenery," according to Lee of Goodmorning Shinhan.
"Equities may then attract smarter, long-term money," he added.
Experts say the foreign capital outflow is seen across various sectors, adding that those invested in longer-termed mutual funds are also exiting the market.
"When the money is getting out from across different industries indices, this probably means that the investors are cutting down their overall Korean exposure," said Kang Hyun-cheol, an analyst at Woori Investment & Securities Co.
In the first three weeks of July, foreign investors sold POSCO shares most heavily, discarding 692.6 billion won worth of shares. Hyundai Motor Co., Samsung Securities Co., and KT&G were also heavily sold at 438.1 billion won, 353.9 billion won, and 288.8 billion won each.
Meanwhile memory chip shares were in favor; investors bought 546.7 billion won of Samsung Electronics Co. shares, and 140.3 billion won of Hynix Semiconductor Inc. shares during the same period.

https://www.koreaherald.co.kr/SITE/d...0708010049.asp