As the KOSPI index, which had risen to 8,000 points, shows a roller-coaster market on foreign investors' dumping, analysts in the securities industry said, "Foreign investors are instead allowing an expansion of the weighting of Korean stocks."
Hana Securities said in a report on the 20th that foreign investors are raising their equity stakes in Korean stocks in a different way. Although foreign investors have been net sellers of 90 trillion won so far this year, their equity share has continued to climb, it said.
Lee Kyung-soo, a researcher at Hana Securities, said, "The foreign investor equity ratio is at a record high of 38.5%," adding, "Of the KOSPI's market capitalization of 5,777 trillion won, the market cap held by foreign investors is 2,224 trillion won."
He added, "If there had been no intent to increase the weighting, foreign investors would have been net sellers of 230 trillion won this year."
He added that during the rally from March 2020, right after the COVID-19 shock, to July 2021, the foreign investor equity ratio fell from 37.7% to 31.4%. At that time, foreign investors were net sellers of 44 trillion won.
At the same time, he analyzed that because the KOSPI index surged unusually fast, there is a possibility foreign investors did not fully complete their weighting adjustments.
The researcher said, "Assuming Korea is at a neutral weighting, based on current prices foreign investors have room to sell a net additional 140 trillion won," but added, "Given the current pace of foreign selling, an additional 140 trillion won in selling is unrealistic."
He went on to say that foreign investors are adjusting the speed of their weighting in Korean stocks with a target somewhere between "neutral-plus and overweight."
He also projected an inflection point in foreign fund flows at the end of this month and in June. That is because there are two Morgan Stanley Capital International (MSCI) events.
The researcher said, "In the May MSCI review, Korea's weighting in the MSCI Emerging Markets Index was sharply raised from 15.4% to 21.7%," adding, "This is an additional buying incentive beyond passive funds."
He added that in mid-June this year, in the market accessibility review and watchlist announcement related to inclusion in the MSCI Developed Markets Index, Korea is expected to see a positive outcome with a probability of more than 60%.
The researcher said, "Whether the government's strong political will and the confirmed schedule of 24-hour foreign exchange trading in July can play a role is the key variable in this June's MSCI Developed Markets Index watchlist decision," adding, "If Korea is added to the list this time, it could be included in the developed markets index at least two years later."