Analysts say the KOSPI index's sharp jump despite heavy selling by foreign investors signals a fundamental shift in the domestic stock market's supply-demand structure. In the past, foreign capital inflows set the market's direction, but as short- and long-term household funds pour into stocks, domestic money centered on exchange-traded funds (ETFs) is propping up the market.
Some also interpret the "Donghak ant movement" that emerged during the COVID-19 pandemic as not a temporary phenomenon but a sign of a structural change in the domestic stock market.
On the 21st, the KOSPI index surged more than 8%, putting 8,000 points back within sight 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, pensions, typically considered institutions, were net sellers of nearly 6 trillion won, while the financial investment account that captures ETF trades was a net buyer of 49 trillion won. A large portion 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 based on the explosive growth of the ETF market. According to the Korea Exchange (KRX), the domestic ETF market's net worth aggregates topped 478 trillion won as of the 21st. After surpassing 100 trillion won in June 2023, it surged alongside this year's market rally, exceeding 300 trillion won in Jan. and 400 trillion won in Apr., maintaining a steep growth trajectory.
In particular, while individual funds previously focused on short-term trading of single stocks, there has recently been growing inflows of long-term, passive money through pension accounts, ISAs (individual savings accounts), and installment-type ETF investments. Long-term, passive funds flowing into the market are acting as a buffer absorbing the shock from foreign selling.
Maeng Juhui, a researcher at Samsung Securities, said, "The expansion of individuals' ETF investments and inflows of passive and installment-type funds via pension and ISA accounts are playing an important role in the domestic market's rise," adding, "As a result, the domestic market appears to be entering a phase where its domestic capital base is expanding from a structure that relied on foreign capital flows."
However, the massive inflow of retail money that has powered the index higher is also widening the market's swings. According to Shinhan Investment & Securities, the KOSPI's gain of 8.4% on the 21st ranked fifth by gain and 11th by volatility since the 2000s.
In particular, there have been many cases of wild swings this year; since the 2000s, the only years the KOSPI rose more than this year were right after the 2009 global financial crisis (11.9%) and in 2020, immediately after the COVID-19 pandemic (8.6%).
Researcher Kang Jinhyeok said, "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," explaining, "The KOSPI index is becoming more dynamic."