Analysts say the KOSPI index's surge despite a massive sell-off by foreign investors signals a fundamental shift in the domestic stock market's supply-demand structure. In the past, the market's direction hinged on foreign capital inflows, but with a flood of short- and long-term household funds heading into the market, domestically sourced money centered on exchange-traded funds (ETFs) is propping up prices.
There is also an interpretation that the "Donghak Ant Movement," which emerged during the COVID-19 pandemic, was not a temporary phenomenon but a sign of a structural change in the domestic stock market.
On the 21st, the KOSPI index jumped more than 8%, putting 8,000 points back within reach in one leap. Notably, the index has remained strong this year even though foreigners have been net sellers of more than 94 trillion won in the main board. Most of the shares sold by foreigners were absorbed by individuals (54 trillion won) and institutions (27 trillion won).
However, pension funds—typically viewed as institutions—were net sellers of close to 6 trillion won, while the financial investment account, where ETF trading is tallied, was a net buyer of 49 trillion won. A significant share of ETF trading is by individuals. In effect, households took most of what foreigners sold.
Experts say this change in the supply-demand structure is rooted in the explosive growth of the ETF market. According to the Korea Exchange (KRX), as of the 21st, the domestic ETF market's net worth aggregates exceeded 478 trillion won. After topping 100 trillion won in Jun. 2023, it has continued a steep climb alongside this year's market rally, surpassing 300 trillion won in Jan. and 400 trillion won in Apr.
In particular, whereas individual money in the past focused on short-term trading of single stocks, more recently inflows have expanded into long-term, passive-type funds such as pension accounts, ISAs (individual savings accounts), and installment ETF investing. Long-term, passive money flowing into the market is acting as a buffer that absorbs the shock of foreign selling.
Maeng Ju-hui, a Samsung Securities researcher, said, "An expansion of individual ETF investing and inflows of passive and installment-type money through pension and ISA accounts are playing an important role in lifting the domestic market," and added, "As a result, the domestic stock market appears to be entering a phase in which the domestic capital base is gradually expanding from a structure that relied on foreign capital flows."
However, the massive inflow of individual money that has powered the index higher is also widening market swings. According to Shinhan Investment & Securities, the KOSPI index's gain on the 21st (8.4%) ranked fifth by gain and 11th by volatility since the 2000s.
In particular, there have been many days of sharp surges and plunges this year. Since the 2000s, the only years when the KOSPI index rose more than this year were immediately after the global financial crisis in 2009 (11.9%) and in 2020, right after the COVID-19 pandemic (8.6%).
Researcher Kang Jin-hyeok explained, "The 'KOSPI 200 volatility index' (VKOSPI), which averaged 18.8 points in the past, has risen to an average of 50.3 points this year," adding, "The KOSPI index is becoming more dynamic."