Net selling by foreign investors on the Korea Exchange's main board continues. For five straight trading days, foreigners' daily net selling on the main board topped 1 trillion won. As the war between the United States and Iran shows signs of dragging on, global oil prices have surged, which is seen as weakening preference for risky asset.
Does that mean KOSPI's investment appeal itself has weakened? Experts say KOSPI's fundamentals (basic strength) have not changed much. However, some analysts say that the key gauge to judge future changes in KOSPI fundamentals is to "watch the purchasing managers' index (PMI)."
According to the Korea Exchange (KRX) on the 26th, over the last five trading days (Mar. 19–25), foreign investors were net sellers of more than 10 trillion won of KOSPI stocks. On Mar. 19 they sold a net 1.8 trillion won, on the 20th 1.24 trillion won, on the 23rd 3.675 trillion won, on the 24th 1.986 trillion won, and on the 25th 1.289 trillion won, topping 1 trillion won every day.
With foreign net selling continuing, the momentum for an index rebound also appears to have weakened. A research analyst at a securities firm said, "Funds from foreigners and institutions tend to concentrate in a specific direction and thus determine the market's direction," adding, "If foreign and institutional flows do not back the market, it will be hard for the index to turn upward on retail buying alone."
On the positive side, the basic strength of the domestic stock market itself does not appear damaged. Noh Dong-gil, a researcher at Shinhan Investment & Securities, said, "It is hard to view the recent correction in the domestic stock market as a result of earnings damage," adding, "In this correction, the essence of foreign flows should be understood as a trimming of portfolios centered on semiconductors and autos, which had high liquidity and contributed strongly to index gains."
However, some analysts say that if a period of high oil prices is prolonged and inflationary pressure builds, changes in corporations' fundamentals could emerge. In that case, PMI is presented as the key gauge. PMI is a leading indicator of the manufacturing economy, and typically, 50 is the threshold to gauge "expansion" versus "contraction."
Noh said, "If PMI falls below 50 and stays there for several months, profits in economically sensitive sectors such as steel, machinery, and IT hardware could be affected." After the Russia-Ukraine war dragged on in the past and PMI slowed, corporations' earnings per share (EPS) fell about eight to 11 months later.
Semiconductors, however, are cited as a sector with relatively low linkage to PMI. Noh said, "For semiconductors, it is hard to conclude future earnings prospects based solely on a decline in the global manufacturing PMI," adding, "The sector often moves separately from PMI and tends to be affected later when the business cycle breaks down."
He noted that even while the global manufacturing PMI hovered around 50 from the second half of 2023 to 2024, semiconductor EPS rose sharply. Expanded investment in artificial intelligence (AI) and structural demand such as high-bandwidth memory (HBM), graphics processing units (GPU), and advanced packaging have partially decoupled the semiconductor cycle from the traditional manufacturing business cycle.
Accordingly, he advised, "For semiconductors, we should prioritize memory prices, the HBM premium, AI capital expenditure (CAPEX), and bottlenecks in advanced packaging over PMI."