The futures index has exceeded the spot index in Korea as foreign investors restricted in short-selling amidst the COVID-19 volatility turned to futures buying to join the rally in the Kospi market.

According to the Korea Exchange on Thursday, the Kospi 200 Futures Index was 0.15 point higher than theoretically fair price on Wednesday, while Mini Kospi 200 futures was overvalued by 0.14 point.

The foreigners’ buying spree created ‘contango’ for the first time for the Kospi 200 Futures index, where the expected future spot prices are at a discount to the forward price of a future contract.

“Overseas investors are purchasing the futures contracts despite their overvaluation, which could serve as a signal that they have turned long on Korean stocks for the time being,” said Kim Dong-wan, an analyst from Eugene Investment & Securities.

Some market experts said that the contango also drove the institutional investors’ massive purchases of stocks on the Kospi, worth 1.13 trillion won ($929 million), on Wednesday.

Kim said the massive spot purchases were possibly aimed at profit taking when the futures price falls below the spot price because short selling has been temporarily banned since March.

By Pulse

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