SEOUL, Nov 7 (Reuters) - Though foreigners' record buying streak was broken last month, inflows to South Korea's stock market appear far from over as an export recovery, relatively cheap prices and expected gains for the won remain enticing for offshore investors.
Foreigners' 44-session buying streak ended on Oct. 31, a spree that South Korea's Financial Supervisory Service (FSS) said on Thursday translated to 5.29 trillion won ($4.99 billion)worth of stock inflows in October.
This came after a record 8.33 trillion won worth of purchases during September.
Preliminary data showed that foreigners have taken out 69.5 billion won from local stocks so far in November, however, coinciding with the Kospi's 0.8 percent fall as investors take a breather ahead of the latest clues on the strength of the U.S. economy and upcoming confirmation hearings for Federal Reserve chairwoman nominee Janet Yellen.
But investors and analysts say that foreigners aren't rushing for the exits and expect inflows to resume.
'You have to remember that Korea is one of the more liquid markets in emerging markets so that attracts money,' Mark Mobius, executive chairman of Templeton Emerging Markets Group, told Reuters by telephone. 'And also, valuations are cheap.'
Despite having risen by more than 8 percent so far in the second half of the year, the price-to-earnings (PE) ratio for Korean shares stood at 9.82 as of Tuesday, according to Thomson Reuters data, substantially cheaper than regional peers such as Hong Kong, Taiwan and Thailand.
The PE ratio for technology giant and main board heavyweight Samsung Electronics Co stood at 8.04, even lower than the overall index.
South Korea's export recovery will continue to attract investors, as well.
Preliminary trade data showed shipments of mobile handsets and cars produced by Samsung Electronics, Hyundai Motor Co and their peers to the U.S. and the European Union grew at double-digit rates for the Oct. 1-20 period from a year earlier, bolstering prospects for the firms' future earnings.
'As long as Chinese macro and US/Europe end-markets remain healthy, Korea exporters in technology, automotive and shipbuilding will also perform robustly,' said Ron Lee, associate portfolio manager for Hong Kong-based Cathay Conning Asset Management, in an e-mail statement.
The won's expected strength offers additional room for profit for offshore investors.
The currency is up 7.6 percent against the dollar so far in the second half of the year, buoyed by accelerating domestic economic growth and a substantial current account surplus, and the trend is seen continuing in the absence of major external shocks.
'The won will appreciate going forward as South Korea continues to run a trade surplus, which will again create opportunity for foreign-exchange gains (for offshore investors),' said Hanyang Securities analyst Lim Dong-rak, tipping the benchmark Korea Composite Stock Price Index to end this year at 2,130.
The KOSPI closed at around 2,014 points on Wednesday.
On the other hand, the FSS said foreigners took out 2.5 trillion won worth of funds from the bond market in October -the biggest outflow since August 2011 - as investors opted not to roll over matured debt amid uncertainties about the prospects of U.S. stimulus tapering.
($1 = 1061.1750 Korean won)
(Reporting by Se Young Lee and Jungmin Jang; Editing by Kim Coghill and Stephen Coates) Keywords: KOREA ECONOMY/FOREIGN FLOWS
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