Global investors trim positions, ramp up hedges
Caution grows ahead of SpaceX IPO, FOMC meeting
Analysts: Kospi appeal intact, earnings outlook solid
The Kospi tumbled below 8,000 and fell as low as the 7,500 level during trading Monday, as wariness among global investors continued to mount. Some overseas investors have been taking profits while others are stepping up derivative-based hedging strategies.
Bloomberg reported Sunday that optimism toward South Korean equities is giving way to caution, with some investors trimming crowded positions and reducing their exposure.
Singapore-based hedge fund Golden Horse Fund Management is a prominent example. The firm recently cut its exposure to Korean stocks while adding layers of derivative protection.
Managing partner Yiling Ong said the firm had been "gradually reducing exposure and stacking up derivative protection over the past few weeks," adding that it was "wise to keep some dry powder" given that major initial public offerings this month — including the SpaceX listing — could trigger rotation out of Korean equities.
Caution is also visible in the options market. Demand for downside protection is outpacing bullish bets in options trading on the iShares MSCI South Korea exchange-traded fund listed in the United States. The ETF tumbled 14% in the US market on June 5.
Voices warning of a potential correction are also emerging in the domestic brokerage community.
Jeong Da-un, a researcher at LS Securities, said in a report Monday that the firm "is factoring in a drawdown of more than 20% from the Kospi's peak," citing the need to account for the interest rate environment and structural shifts in the market.
Historical precedent lends weight to the cautious view. During past rate-hike cycles, the Kospi's maximum drawdown from its prior peak reached minus 26.5% in August 2019 and minus 34.8% in September 2022.
Jeong said no bottom signal has yet been detected in the current selloff. He added that the SpaceX listing, a Federal Open Market Committee meeting and US election campaign activity around Independence Day could all act as additional sources of volatility.
Not everyone sees the caution as a sign of outright pessimism toward Korean stocks. Tanvir Sandhu, chief global derivatives strategist at Bloomberg Intelligence, said the debate is "not whether the Kospi story is still attractive, but how to stay invested without giving back some of the gains."
Valuations remain compelling. The Kospi's 12-month forward price-to-earnings ratio stands at 8.6 times, below its five-year average of 10 times and well below Taiwan's market, which trades at around 20 times.
The earnings outlook is also favorable. Golden Horse Fund projects that net profit growth for Kospi-listed companies — excluding Samsung Electronics and SK Hynix — has been revised up from around 20 percent in January to more than 50 percent recently.
moon@heraldcorp.com
