After the 2026 market open, the KOSPI index topped 5,000 points in just 15 trading days. But compared with the bull market that began last year, foreign capital inflows have yet to reach a peak.
Experts are focusing on the fact that the 5,000 level was breached even though foreign buying is not as explosive as in past bull markets. They say the market is moving away from the "cheonsudap stock market," which used to swing solely on foreign flows, as domestic funds and policy credibility begin to take a leading role in lifting the index. In particular, the fact that foreign inflows have not peaked is seen as a potential factor that could support further gains ahead.
In other words, the dominant view is that if foreigners return in earnest, the additional upside momentum for the index will grow stronger.
On the 22nd, according to the Korea Exchange (KRX) market data system, foreigners bought a net 2.752 trillion won in the KOSPI market so far this year (Jan. 2–21).
Foreign capital inflows have been highly volatile. While the KOSPI index rose on 13 of 14 trading days this year, foreigners were net buyers on only eight sessions.
Notably, compared with last year's bull market, foreign inflows still fall well short. From May to Oct. last year, when the first KOSPI rally began, foreigners bought a net 23.473 trillion won.
In Nov. last year, when the artificial intelligence (AI) bubble debate flared up, foreigners dumped 14 trillion won to take profits. A second rally began in Dec., turning flows back to net buying, but compared with the net selling in Nov., the scale remains less than half.
Analysts say the rebounding won-dollar exchange rate is holding foreigners back. The rate, which had surged to 1,482 won in mid-Dec. last year, temporarily fell to the mid-1,400 won range after strong verbal interventions by the government and the announcement of foreign exchange market stabilization measures.
But the dollar's strength this year has pushed the rate back up. As of the 19th, the won-dollar rate climbed into the 1,470 won range. Typically, when the won weakens, foreigners can't help but take a cautious stance on buying domestic stocks due to concerns about FX losses.
Institutions, including pension funds, have sold 5.733 trillion won so far this year. In particular, pension funds were net sellers of 1.1174 trillion won. This behavior is seen as a result of mechanical selling as the domestic equity allocation effectively hit management limits.
Given that the government has set "stock market revitalization" as a key goal, there appears to be room for pension fund money to flow more actively into the domestic market going forward.
President Lee Jae-myung, in a year-end Ministry of Health and Welfare briefing, said, "As domestic stock prices have recently risen, the National Pension's (domestic) equity holdings have exceeded their limits. Do we have to keep selling?" and added, "The National Pension should think hard about this," effectively signaling a potential increase in domestic equity allocation.
However, the "retirement pension fund-of-funds" plan, which the ruling party and government could announce as early as this month, remains contentious. The plan would pool retirement pensions that individual financial firms have managed into a large fund. Critics worry that if the state leads management of retirement pension funds, the money could be swayed by government policy directions.
Individual investors, meanwhile, appear focused on taking appropriate profits rather than jumping onto a surging trend. Individuals bought a net 323 billion won during the period.
Some note that, beyond individuals' direct investing, the share of indirect investing via exchange-traded funds (ETFs) should be considered. That is because ETF transaction volumes are included in the trading data of financial investment institutions, making it hard to ignore the indirect inflows from individuals through ETFs.
Lee Jae-won, an analyst at Shinhan Investment & Securities, said, "Recently, the net buying side that moves in tandem with the KOSPI index is financial investment," adding, "The first factor affecting financial investment flows is liquidity supplied by new ETF creations."
He added, "The rise in individuals' indirect investment via ETFs and the increase in settlement deposits are acting as the key drivers for achieving KOSPI 5,000."
The market view is that, in addition to stable inflows of institutional funds, continued foreign inflows are needed for the KOSPI index's upward trend to continue.
To that end, a stable won-dollar exchange rate is cited as a condition for steady foreign flows. Kim Jae-seung, an analyst at Hyundai Motor Securities, said, "With semiconductors entering a historic supercycle, if the won-dollar rate stabilizes, we expect foreign net buying to gradually expand," adding, "In particular, when foreigners buy, large-cap stocks centered on semiconductors are favored."
Kim Kyung-tae, an analyst at Sangsangin Investment & Securities, noted that the exchange rate and U.S. inflation trends are key for the KOSPI to continue its upward trajectory.
He explained, "High exchange-rate volatility affects both foreign flows and corporations' earnings. If price stability is confirmed and rate cuts get underway in earnest, there is room for stronger inflows alongside a turn to won strength."