Foreign Investors Rebalance Portfolios, Driving South Korean Equity Markets
After a period of significant divestment, foreign investors have reversed their stance, turning to net buying in South Korea’s equity markets this month. This shift signals a renewed confidence in domestic stocks, particularly within the benchmark Korea Composite Stock Price Index (KOSPI) and the secondary KOSDAQ market.
The turnaround is dramatic. In the preceding month, foreign investors recorded an unprecedented net selling of 14.4562 trillion Korean won on the KOSPI. However, as of the 12th of the current month, they have actively purchased a net total of 3.0471 trillion Korean won on the same index, according to data from the Korea Exchange.
Key Sectors Attracting Foreign Capital
The renewed buying interest from overseas is particularly concentrated in a few key blue-chip companies. The top stocks attracting foreign capital on the KOSPI this month include:
- Samsung Electronics: Garnering a substantial 841.6 billion Korean won in net purchases.
- SK Hynix: Following closely with 791.4 billion Korean won in net buying.
- Hyundai Motor Company: Attracting 406.2 billion Korean won in net purchases.
- Hanwha Aerospace: Securing 268.0 billion Korean won in net buying.
This buying pattern stands in stark contrast to the previous month’s outflows. Concerns surrounding an “artificial intelligence (AI) bubble theory” had previously prompted significant foreign net selling, with SK Hynix leading the divestment at approximately 8.7309 trillion Korean won, followed by Samsung Electronics at 2.2292 trillion Korean won. The current buying spree suggests that these earlier anxieties may be subsiding.
KOSDAQ Market Also Sees Influx of Foreign Funds
The positive trend extends beyond the KOSPI, with foreign investors also demonstrating sustained interest in the KOSDAQ market. As of the current month, foreigners have recorded a net purchase of 330.1 billion Korean won on the KOSDAQ. This marks the third consecutive month of net buying on the KOSDAQ, following net purchases of 601.5 billion Korean won in October and 290.1 billion Korean won in November. This follows a period of net selling amounting to 355.2 billion Korean won in September.
Factors Driving the Foreign Investment Rebound
Market analysts attribute this significant shift in foreign investor sentiment to several converging factors. Kim Jae-seung, a researcher at Hyundai Motor Securities, highlighted the receding impact of the initial shock from the AI bubble theory as a primary driver. Additionally, Kim pointed to the stabilization of the won-dollar exchange rate, which had previously exhibited heightened volatility.
“The bubble theory that emerged in January and the expanded volatility in exchange rates are expected to stabilize starting this month,” Kim explained. He further elaborated on the macroeconomic outlook, stating, “The U.S. Federal Reserve’s interest rate cuts are likely to weaken the dollar index, leading to a long-term stabilization of exchange rates.” This anticipated currency stability is crucial for foreign investors seeking to mitigate exchange rate risks.
Looking ahead, Kim expressed optimism about continued foreign participation in the South Korean market. “I expect more foreign investors to enter the market around year-end and early next year,” he concluded, suggesting a potentially sustained period of foreign capital inflow.
Domestic Investors Show Contrasting Behavior
In parallel to the foreign investor rebound, domestic individual investors have exhibited a contrasting trend. Last month, individual investors were net buyers on the KOSPI, with purchases totaling 9.2875 trillion Korean won. However, this month has seen a reversal, with individual investors becoming net sellers, divesting 5.4964 trillion Korean won from the KOSPI. This divergence in behavior between foreign and domestic investors underscores the dynamic nature of market sentiment and the various factors influencing investment decisions.