The "sell Korea" stance by foreign investors that had continued for 25 trading days since last month has stopped, turning to a net buying bias for three straight sessions.
Markets are split over the return of foreign investors after a prolonged selling offensive. Optimists say it signals a recovery in momentum for a trend rise, while cautious voices argue it is merely a technical rebound catching its breath in an oversold zone.
According to the Korea Exchange (KRX) on the 17th, foreign investors switched to net buying on the KOSPI market on the 12th and maintained a strong net buying bias for three consecutive sessions through the previous day.
Previously, from the 7th of last month to the 11th of this month, foreign investors dumped a staggering 7.557 trillion won worth of KOSPI shares over 24 trading days. Then on the 12th they net bought about 2.6 trillion won, flipping their position for the first time in 25 trading days, and signaled their return by purchasing an additional 1 trillion won on the 15th and 1.4568 trillion won on the day.
On the day, major sectors bought by foreign investors on the KOSPI market were semiconductors and large caps such as Samsung Electro-Mechanics, SK hynix, Hyundai Motor, and LG. As foreign funds flowed in, the KOSPI index has also been rising for three straight sessions since the 12th.
The key driver behind the foreign investors' shift is a change in the macroeconomic environment. Analysts say the surge in the exchange rate and geopolitical uncertainties that had spurred foreign outflows have simultaneously entered an easing phase. Brokerages expect that even the halt of the prolonged selling streak will calm market volatility and positively affect investor sentiment.
In particular, ahead of the June Federal Open Market Committee (FOMC) meeting, growing expectations that the U.S. Federal Reserve (Fed) will hold rates steady have weakened pressure for a stronger dollar. A peace agreement between the United States and Iran, which had rattled global supply chains and oil prices, also cooled geopolitical risks, becoming a decisive trigger for improving foreign fund flows.
Lee Jae-won, a researcher at Yuanta Securities Korea, said, "With geopolitical tensions easing and the SpaceX initial public offering (IPO) event over, foreign investors have turned to net buying on the KOSPI market for three straight sessions," adding, "In particular, foreign funds are flowing into KOSPI large caps."
Some say the influence of foreign investors has somewhat diminished as household money has flowed mainly into exchange-traded funds (ETF), but the prevailing view is that if the large-scale net buying continues, it will become additional fuel for the stock market to rise.
Lee Jin-woo, head of research at Meritz Securities, said, "In a situation like now where the won-dollar exchange rate is surging, foreign fund flows can act as an important variable for the domestic stock market," noting, "When foreign buying pours into the domestic stock market, it helps stabilize the won-dollar exchange rate."
However, the stock market's long-term direction is expected to be determined by a combination of foreign fund flows along with listed companies' earnings improvements and external variables.
Lee said, "Volatility is expanding depending on variables such as whether the U.S. market calms, whether tensions between the United States and Iran are resolved, and global fund flows after the SpaceX listing," adding, "It is too early to gauge the direction of the domestic market based solely on foreign buying inflows."
Lee Kyung-min, a researcher at Daishin Securities, said, "When foreign funds come into the domestic market, there is an effect of strengthening the market's momentum," while assessing, "Rather than determining the market's direction, foreign buying should be seen as only intensifying it somewhat."
The researcher said, "While a short-term overheating cooldown and an overhang-absorption phase should be considered, valuation normalization based on earnings and a march to a KOSPI record high are expected to repeat."