The KOSPI index has continued its rally after recording the highest gain among major global stock indexes last year, but there was a pointed note that "structural demand for Korean stocks is very weak in the medium to long term."
Global investment bank Société Générale S.A. said in a recently released report, "The KOSPI index in 2025 posted a high return of 80%, but only extremely limited investor participation is evident on the supply-demand side," adding, "Domestic institutional investors were the only net buyers, while both foreigners and retail investors remained net sellers."
In fact, according to the Korea Exchange (KRX), in the main board from Jan. 2 to Dec. 30, 2025, institutional investors were net buyers of 1.97 trillion won, while foreigners and individuals were net sellers of 2.64 trillion won and 465 billion won, respectively. A significant portion of the funds that institutions bought on net came in through financial investment (net buying of 3 trillion won).
On this, SG said, "Even institutional buying at home was concentrated in securities firms and market makers rather than broad long-term investment demand," adding, "This means the market is being supported by limited players without an expansion of the real investor base." Typically, when institutions are net buyers, retail investors perceive it as "big hands" such as pension funds that hold long-term buying stocks, but in reality that was not the case.
SG explained this phenomenon as "a result of increased issuance of structured products by securities firms, such as equity-linked securities (ELS)." Because structured products are based on stocks, they naturally create additional demand for the underlying assets (stocks) after issuance for delta and gamma hedging.
SG analyzed, "This is not demand based on corporate fundamentals or long-term investment judgments, but mechanical, non-fundamental demand stemming from derivatives hedging, which is a qualitative limitation."
According to the report, the share of structured products based on a single stock as the underlying has risen to 45%, marking a record high in recent years. SG pointed out, "This means flows are crowding into certain large caps or popular names, while the spillover effect to the broader market is limited."
In addition, SG viewed the role of the National Pension Service (NPS), considered a key player in Korea's stock market flows, as still small. The NPS's domestic equity share is close to the upper bound of its strategic asset allocation (SAA) at about 17.4%, leaving only about 2 percentage points of room to increase domestic equity exposure. Unless the policy cap on domestic equity weight is raised, SG judged it is highly likely that additional NPS investment in Korean stocks will be structurally constrained.
As for foreign fund inflows, only a limited net buying trend has been observed in semiconductors. However, SG said, "Even that is only about 3 trillion won annually, which is not large," adding, "It is a strong preference for specific large caps rather than a bet on the sector as a whole."
By contrast, there appears to be significant room for household funds to flow into the Korean stock market. SG said, "Individual investors are assessed as the most important potential variable for future Korean market flows."