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SCMP Reporter

THE foreign bulls surprised analysts by failing to charge when the ceiling on overseas stock ownership was lifted for the first time since the Seoul market was opened to foreign investment in 1992.

THE foreign bulls surprised analysts by failing to charge when the ceiling on overseas stock ownership was lifted for the first time since the Seoul market was opened to foreign investment in 1992.

  Financial authorities have been pondering for months about whether to raise the limit, fearing inflationary pressure from an influx of foreign funds. They subsequently promoted the long-awaited lifting of the ceiling as a further sign of Seoul's commitment to the early opening of its financial markets.

  As the authorities lifted the limit on foreign ownership in any single listed company open to overseas investment, from 10 per cent to 12 per cent, the market Composite Index, which had been fluctuating widely through most of the day, dropped 8.2 points to close at 1,066.21. The lifting of the limit made shares worth about US$3.5 billion available to overseas investors.

  Analysts such as George Goundry of Jardine Fleming believe the ceiling had yet 'to kick' into the market.

   'Also, many fund managers believe Korean stocks are overpriced and are due for correction,' he said.

    The market, after several years in the doldrums, has climbed from a low of 855 points in April to a high of 1,138.75 on November 8, a rebound of 33 per cent.

     'This is a very large increase in such a short period for a market with Seoul's capitalisation,' said Mr Goundry.

   According to Adrian Cowell, chief representative of Kleinwort Benson, many investors lost out when the Korea Electric Power Co share price plummeted when more shares were made available to foreigners in 1992. He reckoned investors were now being more cautious.

  'However, there will be buying as this is a good opportunity for investors to adjust their portfolios,' he said. 'Last month's dramatic drop in OTC (over-the-counter) shares, which are expected to recover, reflects this adjustment.'      Apart from blue chip stocks in heavy industry, construction, electronics, banking and telecommunications, there is little interest in most new stocks, with many of the listed companies still unavailable for foreign ownership.

    Foreign brokers, originally lobbying for at least a 15 per cent increase in the ceiling, said overseas buyers were much less aggressive than expected because of a general slump in the Asian market sentiment and the threat of increased interest rates.

    While foreigners may have stayed on the sidelines, analysts believe the financial authorities were relieved that the raising of the ceiling had a toned down impact.

    'I think there was quite a lot of foreign interest, but it was offset by heaving selling by institutional investors,' said Eugene Yoon, analyst with J Henry Schroder Wagg and Co.

     Korean institutional investors, dumping blue chips early in the morning as the stock market dropped, misjudged foreign demand, according to analysts.

    With foreigners making November one of the heaviest months for selling since the market was liberalised, most domestic brokers believe overseas investors were repositioning for a run on blue chips.

    'It was very surprising,' said Seok Yun, financial analyst with S G Warburg. 'In early November we expected aggressive buying by foreigners to lead to another market surge.

    'However, as fundamentals are good, we still expect heavy selling on about 15 blue-chip issues in the next few weeks.

    'It is possible there could have been strong selling among offshore trust funds.'    Analysts believe foreigners are expected to buy blue chips such as Samsung Electronics, Korea Mobile Telecom and Hyundai Engineering and Construction.



Foreign bulls react cautiously to further opening of Korean markets