Global investors are showing renewed interest in South Korea after a significant market drop in July. Despite a wild turn in the market, heavyweight chipmakers such as Samsung Electronics and SK Hynix are still seen as having intact growth momentum.

Record Rally

On Friday, foreigners, who have been net sellers of South Korean shares all year, turned buyers of 7.2 trillion won ($5 billion) worth of stock, more than double the previous one-day record. This shift in mood comes after a roughly 40% drawdown from a peak in June, which had burned domestic retail traders.

Assets at leveraged exchange-traded funds (ETFs) with Korean underlying stocks have collapsed from $50 billion in late June to $17 billion last week, according to J.P. Morgan research. This collapse is seen as a key factor in the market drop, with many considering it a leverage event rather than an earnings event.

Market Outlook

Analysts believe that the market drop was aggravated by forced selling of shares at a hemorrhaging hedge fund, which now appears to be over. With the unwind of leveraged ETFs seemingly complete and hedge funds deleveraging, some investors see this as an opportunity to buy into the South Korean market at a discount.

U.S. institutional investors, while wary of stepping into a falling market, may be willing to take another look at some of these Korean names now. The median 12-month return after previous emerging-market corrections being about 28% supports the idea that a durable bottom may be forming.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.