Individual investors from South Korea flocked to Chinese stocks in 2020 and accounted for nearly a third of total net investments in mainland China, according to data from the Korea Security Depository (KSD).
Shares of Chinese stocks purchased by Korean retail investors increased from $32.9 million in July 2019 to $240 million in July 2020.
Why are so many retail investors from South Korea intrigued by Chinese stocks?
While the Korea Composite Stock Price Index (KOSPI) is up year-to-date in 2020, both the Shanghai Stock Exchange Index (SSE) and Shenzhen Stock Exchange Index (SZSE) have experienced bigger increases so far this year.
In the face of growing trade sanctions, Chinese companies have been ambitious for technology dominance. Chinese tech stocks in particular have been responsible for much of the growth this year.
South Korean investors have reaped the benefits of this growth. Six of the top 10 Chinese companies that South Koreans have invested in were tech firms.
China has also experienced a quicker recovery from the pandemic, whereas South Korea is still dealing with concerns about new outbreaks.
Another reason for the surge of Korean investors is because of financial roadblocks back home. The Korean government recently inflicted a new capital gains tax on domestic stocks and more strict regulations for investors.
While Korean investors like Chinese stocks, the rest of the world does not feel that way.
HSBC, Europe’s largest bank, issued a downgrade on Chinese stocks in July from “overweight” to “neutral.”
Although the bank was impressed with China’s rally after the pandemic, it was also concerned about valuations. HSBC said that Chinese stocks were “expensive on an absolute basis.”
On the other hand, HSBC upgraded its outlook on South Korean stocks by raising its equities from “neutral” to “overweight.”
The bank cited South Korea’s strong demand among semiconductors, cloud, and memory as reasons for the upgrade.