Korean retail investors trading U.S. stocks turned net sellers in the U.S. stock market in April. As the U.S. market has remained sluggish this year and the won-dollar exchange rate broke through 1,500 won, it appears that profit-taking orders, including foreign exchange gains, poured out.
According to the Korea Securities Depository (KSD) SEIBro portal 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.
After showing a monthly decline this year, net purchases of U.S. stocks turned to 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 reflect weakened investment sentiment as U.S. stocks have been sluggish this year. The S&P 500, a benchmark U.S. index, rose 1.72% in January but fell -1.35% in February and -5.13% in March, showing a weak trend.
By contrast, the domestic market's volatility has increased, creating more short-term trading opportunities and boosting its relative appeal. 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 macro-finance at the Capital Market Research Institute, said, "Although Korean stocks have undergone a correction this year, domestic equities have become relatively more attractive given the weak U.S. market," adding, "In such an 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 elevated. According to the Korea Financial Investment Association, average domestic investor deposits in April (1–6) stood at 109 trillion won. The figures were 120 trillion won in March, 105 trillion won in February, and 94 trillion won in January.
The higher won-dollar exchange rate is also cited as a factor spurring profit-taking. After topping 1,500 won for the first time on Mar. 18, the rate has been fluctuating 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 increase the desire to take profits, as foreign exchange gains may be expected from the stronger dollar," adding, "Conversely, if one buys U.S. stocks when the rate is high and it later falls, it amounts to purchasing dollars at an expensive price, which can reduce investment appeal."
The stock most heavily bought on a net basis by Korean retail investors trading U.S. stocks in April was iShares 0-3 Month Treasury Bond ETF (SGOV), which invests in short-term U.S. Treasurys. Index-tracking ETFs such as Direxion Daily Semiconductor Bull 3X Shares (SOXL), which provides triple leveraged exposure to the semiconductor sector, Invesco QQQ Trust (QQQ), and Vanguard S&P 500 ETF (VOO) also ranked among the top net buys.
However, some say the scale of net selling was limited relative to total investment. According to the Korea Securities Depository (KSD), domestic investors hold $155.6 billion (about 233 trillion won) in U.S. stocks, meaning the latest net selling amounts to about 0.6% of the total.