Korean Stock Market Sees Sluggish Foreign Investment Despite Falling Exchange Rates…Complex Factors at Play

SK Hynix's announced method of treasury stock cancellation involves directly purchasing and canceling shares from the market. This method reduces stock supply, alleviating downward pressure on the stock price, and brings a direct buying inflow effect to the market. Analysis suggests that this supply-demand defense effect can be even more positive, especially in situations where stock prices are falling indefinitely.

Samsung Electronics announced a ₩110 trillion shareholder return plan, allocating ₩30 trillion to cash dividends and ₩15 trillion to employee payments, among others. While such a massive shareholder return plan can be interpreted as a positive signal for the market, opinions among market experts vary regarding its scale and method relative to free cash flow. Some evaluate it as a positive surprise, while others react that it falls short of expectations.

In the past, corporate special dividend policies were often linked to major shareholders raising funds to pay inheritance taxes. However, most inheritance tax issues for major corporate owners have now been resolved, and in the case of Samsung Group, inheritance taxes have already been fully paid, reducing the direct correlation seen in the past. Nevertheless, the view that the necessity of funds for major shareholders can still influence dividend policy persists, but it may be more prominent in cases like Chairman Choi Tae-won, where inheritance tax issues remain.

Criticism continues over the double taxation issue, where taxes are levied again on dividends distributed to shareholders after a company has already paid corporate tax. This issue has long sparked debate between the principle of taxing income where it exists and tax resistance. It is argued that it is unfair to tax shareholders again when they receive dividends, even though the company has already paid taxes.

The current stock market exhibits high volatility, increasing investor anxiety. In such a market, it is crucial to differentiate between short-term and long-term investors and formulate distinct response strategies. If one experiences significant psychological pressure in a highly volatile market, advice suggests that stepping back and observing the market for a while can be an effective strategy. Rather than blindly staying in the market, wise judgment tailored to one's investment style and risk tolerance is required.

For short-term investors, in a highly volatile market like the present, one method suggested is to secure cash by taking some losses if risk has been managed, and then temporarily forget about the market. Frequent attempts to trade based on price fluctuations can cause psychological distress and lead to irrational decisions. For short-term investors, avoiding frequent account checks and maintaining distance from the market can be advantageous in the long run.

Continuously reviewing a company's performance is essential in stock investing. For department store stocks, the outlook was positive just a month ago, but poor results were revealed after earnings announcements, disappointing investors. Furthermore, if the exchange rate rises from the ₩1,100s to the ₩1,300s, foreigners' purchasing power for Korean goods will decrease, negatively impacting the performance of domestic consumer-related companies. Therefore, instead of simply neglecting stocks, it is necessary to examine individual stock stories according to changes in market conditions and understand performance changes.

In unstable market conditions, the key to successful long-term investment ultimately lies in focusing on corporate profits. Companies like Samsung Electronics and SK Hynix were able to maintain their investments based on solid profits. Asset allocation trading strategies, which involve diversifying investments across various assets such as stocks, gold, and dollars, are theoretically ideal but can be impractical for individual investors due to the difficulty of timing trades and their complexity. Therefore, focusing simply and clearly on a company's profit-generating ability becomes an important criterion for successful long-term investment. This enables investors to adhere to their investment principles and continue investing steadily even in uncertain market conditions.

The domestic stock market, especially the KOSPI, has been confined to a range around the 2,000 level for a long time, raising questions about long-term investment returns. Experts point out that even if one invests long-term based on performance, the number of companies among all KOSPI stocks that have consistently succeeded with long-term investment over 10 or 20 years is extremely small. Cases like Kakao, where a once-promising company proved the risks of long-term investment with poor stock selection, pose realistic concerns about the success rate of long-term investing in the domestic market. These limitations suggest that domestic investors need to be more cautious when formulating long-term investment strategies.

Fundamental questions are being raised about whether long-term investment is truly a valid strategy in the domestic stock market. The case of Kakao stock, once hailed as a national stock and highly anticipated, but having declined over the past five years, illustrates the reality that simply holding long-term does not guarantee success in the domestic market. Such cases emphasize that investors considering long-term investment must thoroughly analyze the characteristics of the Korean stock market and make careful stock selections.

A new approach has been proposed for forming investment habits: operating a separate goal-oriented installment account where a fixed amount is consistently saved over a period of three to five years. Through this account, by consistently investing even ₩100,000 each month, one can train themselves to study and analyze stocks they are unfamiliar with. This method is explained as helping investors establish their own investment principles and develop stock discovery capabilities without being swayed by market trends. It is important to increase understanding of the market and gain actual investment experience through consistent small-sum investments.

While there are indeed cases of great success from long-term holdings of companies like Samsung Electronics and SK Hynix, it must be acknowledged that an element of 'luck' also played a part in such successes. For example, few predicted SK Hynix's dramatic rebound just three years ago. Market changes are difficult to predict, and various external factors such as the macroeconomic environment and industry trends, in addition to corporate performance and growth potential, complexly influence stock prices. Therefore, when considering long-term investment, one must account for not only a company's intrinsic value but also unpredictable elements of luck.

Despite the won-dollar exchange rate falling to the ₩1,300 range and showing a strong won, foreign investors' capital inflow is not as active as expected. This is due to foreign investors' concerns that they might incur exchange rate losses if they buy won at the current position and the exchange rate moves in the opposite direction again. Additionally, geopolitical risks such as instability in the Middle East persist, and with the year-end profit realization and fund settlement period approaching, foreign investors are taking a conservative stance. These complex factors are acting as fundamental reasons for delaying foreign capital inflow into the Korean market.

Geopolitical risks in the Middle East significantly impact foreign investor sentiment. If a Middle East war breaks out, there is a high possibility that risk aversion will strengthen, leading to an intensified appreciation of the dollar. Since the value of the Korean Won is assessed against relative currencies, especially the dollar, a stronger dollar can lead to a weaker Won. This depreciation of the Won can result in exchange rate losses for foreign investors holding domestic assets, further deterring foreign capital inflow.

The U.S. midterm elections serve as a crucial variable in the global investment market. Concerns are raised that the current administration's policy momentum may weaken after the midterm elections, exacerbating investment uncertainty. Furthermore, major institutional investors like private equity and hedge funds typically settle with clients and assess their operational performance in November, and distribute profits and go on vacation in December. This tends to lead to portfolio rebalancing and a lull in trading activity towards the year-end, which can further reduce foreign investment capital inflow.

The correlation between exchange rates and foreign supply and demand is not as simple as commonly thought. The view that foreign investors will immediately buy domestic stocks simply because the exchange rate falls and the won strengthens overlooks the complexity of the market. Foreign investors consider a variety of macroeconomic factors, including Korea's economic fundamentals, corporate performance, geopolitical risks, and global economic trends, in addition to exchange rate fluctuations, when making investment decisions. Therefore, predicting foreign supply and demand based solely on the exchange rate is unreasonable, and a multifaceted approach is necessary.