Foreign funds are also flowing heavily into the domestic stock market, which has been drawing in a flood of cash from the broader market. On the 4th, when foreigners made a net purchase of 3 trillion won in the stock market, the KOSPI jumped more than 5%, putting the first-ever break above 7,000 points within sight. The day's net foreign buying was the biggest this year.
The driving force behind this year's full-fledged market rally is the earnings improvement of key sectors such as semiconductors, nuclear power, and power equipment, fueled by global liquidity expansion and the growth of the artificial intelligence (AI) industry. On top of that, even the unexpected geopolitical risk of war between the United States and Iran has been overcome, and it appears there are no obstacles left to block the upward momentum of Korea's stock market.
In particular, ample liquidity is powerfully supporting the index. Backed by the government's strong stimulus policy aimed at resolving the chronic undervaluation (discount) of the Korean stock market and using the stock market as a channel to boost household income, a flood of cash has poured into equities.
Foreign funds have joined in as well. In particular, strong foreign buying flowed into semiconductor names such as Samsung Electronics and SK hynix, helping drive a sharp rise in the index.
The large inflow of foreign funds is also tied to changes in the system. Kang Jin-hyuk, a researcher at Shinhan Investment Corp., said, "Foreign investors, who had long been interested in the solid profits and low valuations of Korean semiconductors, traded through listed ETFs such as 'iShares MSCI Korea ETF' (EWY), but the abolition of foreign omnibus account regulations early this year created an environment for foreign retail money to flow in." The recent inflow of foreign funds into the country is a change based on institutional improvements, he noted.
Samsung Securities' sharp rise toward the daily price limit on the day is also seen as being driven by the same factor. Samsung Securities, along with Yuanta Securities Korea, is preparing in earnest to offer foreign omnibus account opening services.
A foreign omnibus account is a system under which, when an overseas financial investment firm opens a single account, non-resident foreigners can trade Korean stocks from that account. Until now, foreign investors had to open an account directly with a Korean securities firm to invest in domestic stocks.
As foreign funds headed en masse to the domestic stock market, the value of the won also rose. The won-dollar exchange rate closed at 1,462.8 won, down 20.5 won from the previous trading day.
With the KOSPI attempting for the first time to climb to 7,000 points, investors' attention is focused on the index's further upside potential. As the market continues an unusual rally, inquiries from investors asking whether it is okay to start investing in stocks even now are pouring into each securities firm.
Many securities firms are offering positive outlooks. Lee Sang-yeon, a researcher at Shinyoung Securities, said, "It is a burden that high oil prices and the resulting inflation pressure have not been completely resolved," but added, "If a pullback comes, it should be seen as a process of cooling short-term overheating rather than a break in the market's uptrend."
Although the burden from the recent index rise has grown, from a mid- to long-term perspective it is not yet time to exit the market. Lee said, "Today's index gains are based on improvements in corporations' fundamentals," adding, "We still prefer large export stocks such as IT hardware, trading companies and capital goods (defense), and machinery."
Samsung Securities raised its index forecast, saying the KOSPI could rise to 8,400 points this year. Yang Il-woo, Head of Team at Samsung Securities, advised, "We need to prepare for the possibility that the earnings momentum will expand across various sectors."
He said, "While strength centered on the AI value chain—such as semiconductors, power equipment, and robots—continues, the scope of AI-related infrastructure corporations is also expanding in global markets, so earnings momentum across various sectors could improve in the domestic market as well."