Korean retail investors trading U.S. stocks turned net sellers in the U.S. stock market in April. As the U.S. stock market remained sluggish this year and the won-dollar exchange rate broke through 1,500 won, profit-taking orders, including foreign exchange gains, poured in.
According to the Korea Securities Depository (KSD) securities information portal, SEIBro, on Apr. 8, domestic investors were net sellers of $907 million (about 1.3372 trillion won) in U.S. stocks from Apr. 1 to 7.
The net buying of U.S. stocks, which had been declining every month this year, turned into net selling for the first time in April. Korean retail investors trading U.S. stocks were net buyers of $5.002 billion in January, $3.949 billion in February, and $1.691 billion in March.
It is analyzed to be the result of weakened investor sentiment as the U.S. stock market has been sluggish this year. The S&P 500, the main U.S. benchmark, rose 1.72% in January but fell -1.35% in February and -5.13% in March, showing a downtrend.
By contrast, the domestic stock market is viewed as relatively more attractive as volatility has increased, creating more short-term trading opportunities. The KOSPI posted returns of 23.97% in January, 19.5% in February, -19% in March, and 8.7% in April.
Jang Boseong, head of macrofinance at the Capital Market Research Institute, said, "Although the Korean stock market has undergone a correction this year, the relative appeal of domestic stocks has increased as the U.S. market has not performed well," adding, "In this environment, there was little incentive to further increase the share of U.S. stocks."
Cash on the sidelines that could flow into the domestic market also remains high. According to the Korea Financial Investment Association, the average balance of domestic investor deposits in April (1–6) was tallied at 109 trillion won. The figures were 120 trillion won in March, 105 trillion won in February, and 94 trillion won in January.
The elevated won-dollar exchange rate is also cited as a factor that spurred profit-taking. Since first surpassing 1,500 won on Mar. 18, the won-dollar rate has fluctuated around 1,500 won amid geopolitical uncertainty in the Middle East.
Jang said, "Typically, selling U.S. stocks when the exchange rate is high can lead to foreign exchange gains due to the stronger dollar, which can increase the desire to take profits," adding, "Conversely, if you buy U.S. stocks when the exchange rate is high and it later falls, it amounts to having bought dollars at an expensive price, which can reduce investment appeal."
The U.S. stock most heavily net bought by Korean retail investors trading U.S. stocks in April was the iShares 0-3 Month Treasury Bond ETF (SGOV), which invests in short-term U.S. Government Bonds. Also among the top net buys were index-tracking ETFs such as Direxion Daily Semiconductor Bull 3X Shares (SOXL), which offers triple exposure to semiconductor stocks, Invesco QQQ Trust (QQQ), and Vanguard S&P 500 ETF (VOO).
However, some say the size of this net selling is limited compared with the overall investment scale. According to the Korea Securities Depository (KSD), domestic investors hold $155.6 billion (about 233 trillion won) in U.S. stocks, meaning this round of net selling amounts to about 0.6% of the total.