The "sell Korea" stance by foreign investors that had persisted for 25 trading days since last month came to a halt, shifting to a buying advantage for three straight sessions.
The market is split over the return of foreign investors, which brought a close to the prolonged selling offensive. Optimists say it signals a recovery of trend-driven upward momentum, 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 buying advantage for three consecutive sessions through the previous day.
Previously, from the 7th of last month to the 11th of this month, foreign investors unloaded a massive 7.557 trillion won worth of KOSPI shares over 24 trading days. Then on the 12th, they turned net buyers to the tune of about 260 billion won, reversing their position after 25 trading days, and signaled their return by additionally purchasing 100 billion won on the 15th and 145.68 billion won on the day.
The main sectors foreigners bought on the KOSPI market that day were semiconductors and large caps, including Samsung Electro-Mechanics, SK hynix, Hyundai Motor, and LG. As foreign funds flowed in, the KOSPI index has also logged gains 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 prompted foreign outflows have entered an easing phase at the same time. In the securities industry, the mere halt of the prolonged selling streak is expected to 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 eased pressure for a stronger dollar. A U.S.-Iran agreement to end hostilities, which had rattled global supply chains and oil prices, also cooled geopolitical risk and became a decisive trigger for improving foreign fund flows.
Lee Jae-won of Yuanta Securities Korea said, "With geopolitical tensions easing and the SpaceX initial public offering (IPO) event also behind us, 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."
While some say the influence of foreign investors has somewhat diminished as household funds have flowed mainly into exchange-traded funds (ETFs) recently, the prevailing view is that sustained large-scale net buying would provide additional upward momentum for the stock market.
Lee Jin-woo, head of research at Meritz Securities, said, "In times like these, when the won-dollar exchange rate is surging, foreign fund flows can serve as an important variable for the domestic stock market," noting, "When foreign buying concentrates in the domestic stock market, it tends to stabilize the won-dollar exchange rate."
However, the long-term direction of the stock market is expected to be determined by a combination of foreign fund flows, listed companies' earnings improvements, and external variables.
Lee said, "The domestic stock market is in a phase of heightened volatility due to variables such as whether the U.S. market calms down, whether tensions between the United States and Iran are resolved, and the flow of global funds after the SpaceX listing," adding, "It is too early to gauge the direction of the domestic market based solely on inflows of foreign buying."
Lee Kyung-min, a researcher at Daishin Securities, said, "When foreign funds come into the domestic stock market, it has the effect of making the market more buoyant," while adding, "Rather than determining the market's direction, foreign buying should be seen as only strengthening the intensity to some extent."
Lee projected, "While we should account for short-term overheating relief and supply absorption phases, valuation normalization based on earnings and a march toward KOSPI record highs are likely to repeat."