Foreign investors who have already turned wary of South Korean stocks ahead of a possibly imminent rate hike by the Federal Reserve are rushing to pull their money out from the Korean stock market in the wake of the deepening product crisis at the country’s market heavyweight Samsung Electronics Co.

On Wednesday, offshore investors net sold 550 billion won ($489.3 million) of Korean stocks listed on the country`s benchmark Korean Composite Stock Index (Kospi), and of this, a 444.5 billion won sell-off came from a single stock - Samsung Electronics, making up 80.8 percent of total net selling. Samsung Electronics is the market bellwether that represents about 18 percent of the country’s stock market by market capitalization.

The massive sell-off by foreigners is the largest one in 14 months since August 26, 2015 when they net sold 550.5 billion won in Korean stocks. They also appear to be dumping local stock futures, net selling 37.4 billion won in the Kospi200 index future on Monday and 1.49 trillion won on Tuesday, a move that suggest they are pessimistic about the equity market in Korea.

Market analysts said that the fallout over Samsung`s Galaxy Note 7 has served as a good excuse for foreign investors to dump Korean stocks that they have already started to lose appetite due to the growing risk of the Korea won weakening against the greenback ahead of the Fed’s possible rate hike later this year. Kim Hak-gyun, head analyst from Mirae Asset Daewoo Co., said the dollar is gaining strength against major currencies on expectations that the Fed is very likely to raise rates in December and capital flight not only from Korea but also from other emerging markets is on the rise. Adding woes to the stock market, the latest crisis at the market heavyweight Samsung Electronics is fanning the exodus of foreign investors, he explained.

The country’s electronics behemoth Samsung Electronics battling with its worst-ever product crisis decided to halt production and sale of the Galaxy Note 7 following reports that replacement devices also caught fire. On Wednesday, it even slashed its July-September operating profit guidance to 5.2 trillion won from 7.8 trillion won it reported last Friday to reflect ballooned expenses including refunds to consumers who bought the troubled device. Its shares finished at 1,535,000 won on Wednesday, tumbling 10 percent from Friday.

Besides the discontinuation of the Galaxy Note 7, the strike of workers at Hyundai Motor Co., Korea’s another leading manufacturer, is behind foreign investors’ dampened appetite for Korean stocks, market analysts noted. An unnamed official from the IB industry said the delay in the initial public offering of Hotel Lotte and Doosan Bobcat has also led foreign investors to lose interest in the local stock market.

By Yong Hwan-jin

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