Behind the KOSPI 6000 era lies the deepening shadow of a "house of cards." The index surged to uncharted heights this year, but analysts say that was because individual investors absorbed foreigners' exits with massive liquidity. In fact, foreigners dumped more than 25 trillion won worth of stocks on the KOSPI market alone from early this year through the 3rd.
In particular, amid the Iran situation, foreign investors recorded net sales of 5.1482 trillion won in the main board in just one day on the 3rd. This was the No. 2 record for single-day net sales, following 7.0528 trillion won on the 27th of last month. The KOSPI index, which plunged more than 7%, posted a much steeper drop than Japan's Nikkei 225 (-3.06%), China's Shanghai Composite (1.48%), and Hong Kong's Hang Seng (-1.01%) that day.
Some in the market, however, see this as an "orderly retreat." Citing the paradoxical rise in the foreign ownership share and the surge in issuance of Korea-focused ETFs listed overseas, they analyze it as a simple rebalancing process following a short-term rally at the start of the year.
According to the Korea Exchange (KRX) on the 3rd, from Jan. 2 to Mar. 3 this year, the KOSPI index jumped 37.4% from 4,214.17 to 5,791.91. During this period, foreigners were net sellers of 25.2072 trillion won, institutions including the national pension funds were net sellers of 15.8914 trillion won (-2.7511 trillion won for pension funds), while individuals alone were net buyers of 34.96 trillion won.
What stands out is foreigners' "weight." Even though foreigners unloaded more than 25 trillion won of shares, the market cap share of their holdings actually expanded. Foreigners' KOSPI share, which was 36.3% at the end of last year, was 37.5% as of the 3rd of this month. Notably, it spiked to 38.2% on the 26th of last month, marking a record high since 2019. Foreigners' share within KOSDAQ also increased from 9.9% to 10.3% over the same period.
This is analyzed as an "index illusion" caused by a short-term surge in mega-cap stocks such as Samsung Electronics and SK hynix, in which foreigners hold more than 50%. While selling cash equities, the value of the blue chips they held rose even faster, increasing their weight within overall portfolios.
According to Daishin Securities, issuance of ETFs tracking the Korea MSCI index rose 39.5% this year. In other words, although they are selling mainly the most-risen names, foreigners' balance of domestic stock holdings has expanded. In particular, last month they were net buyers mainly in secondary batteries, cosmetics, and machinery sectors, including Doosan Enerbility (810.8 billion won), Samsung SDI (546 billion won), Celltrion (426.1 billion won), LG Chem (395 billion won), and APR (380.9 billion won).
In the securities industry, there is also an outlook that foreigners' share of domestic stocks will grow further. In fact, foreigners posted net sales of KOSPI 200 futures amounting to 6 trillion won in January, but last month net sales decreased by more than half to 2.8819 trillion won.
Daol Investment & Securities noted on the 12th of last month, the futures and options expiration day, that non-arbitrage trades (2.1 trillion won) increased significantly compared with arbitrage trades (680 billion won). Kim Ji-hyun, an analyst at Daol Investment & Securities, said, "This suggests the possibility that a decision to increase foreigners' Korea weighting was partly reflected, beyond a simple basis play."
The KOSPI's rally, which topped 6000 last week, is expected to show short-term volatility after U.S. and Israeli strikes on Iran. The won-dollar exchange rate also jumped more than 26 won on the 3rd, at one point reaching 1,466 won. If Middle East tensions intensify and international oil prices and the won-dollar rate keep rising, stock market losses could deepen.
Seo Sang-young, an analyst at Mirae Asset Securities, said, "Concerns over the spread of the Middle East crisis translating directly into a weaker won are a burden for foreign flows," adding, "In particular, Korea relies on the Middle East for about 60% of its energy imports, so if the war drags on, concerns over a shrinking trade balance and rising prices could grow."
Seo added, "The Korean stock market will likely show volatility as a tug-of-war unfolds among individual buying forces that have driven the market recently."