On the 8th, when the KOSPI index plunged more than 8%, the supply and demand in the Korea Exchange's main board split sharply between individuals and foreigners. While foreigners extended their net selling for 21 straight trading days, individuals moved in with large net buying.
Brokerages interpret the recent foreign selling as profit-taking after a sharp rally in the domestic market and part of a global portfolio adjustment. However, if investment sentiment for stocks, a risky asset, continues to weaken and the won-dollar exchange rate keeps rising, there is a growing possibility that foreign funds will exit the domestic market further.
On the main board that day, individuals posted net buying of 1.76 trillion won, while foreigners recorded net selling of 356 billion won. As foreigners sold on the main board, the KOSPI index crashed more than 8% and sank to the 7,400 level.
Looking at the recent flow, the foreign "sell Korea" trend stands out. From the 7th of last month through the day, foreigners extended net selling for 21 consecutive trading days, dumping about 69.417 trillion won worth. During the same period, individuals were net buyers of 57.899 trillion won, moving in the exact opposite direction of foreigners.
Foreign selling in particular was concentrated in large-cap semiconductor stocks. Over this period, foreigners were heavy net sellers of 3.3871 trillion won in Samsung Electronics and 2.7504 trillion won in SK hynix. Effectively, most of the total foreign net selling was focused on those two names. As profit-taking poured in on large-cap semiconductor stocks that had led the recent KOSPI rally, it is seen to have added to supply-and-demand pressure across the market.
Still, some analysis says it is hard to read foreign selling simply as an exit from the domestic market. Even as foreigners continue large net selling on the main board, foreign equity ratios have been rising.
That is because the market-cap weights of Samsung Electronics and SK hynix, where foreign ownership is high, have expanded significantly. Since the second half of last year, as the KOSPI has outpaced major global markets with a steep climb, supply from profit-taking and weight adjustments has emerged.
Lee Kyung-min, a researcher at Daishin Securities, said, "Foreign investors' KOSPI equity ratio is now over 39% and has actually risen," adding, "Recent foreign net selling can be interpreted as supply from rebalancing due to the surge in leading stocks."
Yeom Dong-chan, a researcher at Korea Investment & Securities Co., said, "Even though foreigners have been net sellers of more than 100 trillion won this year, the foreign equity ratio has risen," adding, "Because the foreign equity ratios in Samsung Electronics and SK hynix are higher than the KOSPI average, the expansion of those two stocks' market-cap weights led to the rise in the ratio."
For this reason, brokerages say that although foreign net selling continues, it is hard to interpret it solely as a negative view of the Korean stock market. However, with the won-dollar exchange rate recently topping 1,560 won and rising to the highest level since the currency crisis, whether the rate stabilizes is cited as the key variable for gauging when foreign funds may return.
Household funds have been taking the other side of foreign selling. In particular, as individuals' domestic stock investments via ETFs increased, household funds propped up the market.
Kim Jae-seung, a researcher at Hyundai Motor Securities, said, "The players determining the direction of the KOSPI index this year are individual investors," noting, "The increase in domestic stock investment via ETFs is notable."
Individual investors are actively using not only spare funds but also leverage. As of the 5th, margin loan balances on the main board stood at 28.2735 trillion won, a record high. Including KOSDAQ, total margin loan balances amount to 37.8384 trillion won.