Although the large net selling by foreign investors appears to be nearing its end in the short term, an analysis said the selling could strengthen again during a rebound after the second half. The sharp recent drop has pushed the KOSPI into a technically oversold zone, raising the odds of a short-term rebound, but structural factors—such as macro slowdown, a stronger dollar, and weakened expectations for the semiconductor cycle—still remain drivers of foreign capital outflows.
Byun Jun-ho, a researcher at IBK Securities, said in a report on the 21st, "We expect a foreign flow environment of eased short-term concerns but persistent midterm concerns," adding, "Foreign investors have likely oversold in the short term as they priced in worries about a sentiment peak-out in macro, AI, and semiconductors, so additional selling pressure is expected to be limited, and as a result, the market is expected to start a rebound trend at the end of July."
However, he assessed that the picture is different over a longer horizon.
Byun said, "Looking through the second half and into next year, factors enabling additional selling could surface continuously," and added, "Foreign investors are showing strong selling dominance this year, but from a long-term perspective, it may still be premature to say they have sold enough."
According to IBK Securities, foreign investors' net selling of KOSPI this year totaled about 160 trillion won. The ratio of annual net selling to the average market capitalization was 3.1%, the highest since 2008 (4.6%) during the global financial crisis.
The net selling over the past 60 days also reached about 2% of market capitalization, marking a selling intensity similar to that seen during the past financial crisis.
However, the report analyzed that such excessive selling itself could be a short-term rebound signal. In four cases since 2005 when foreign investors posted similar levels of short-term net selling, selling intensity eased over the following one to three months and the KOSPI showed a rebound trend.
Also, in cases where the KOSPI recorded double-digit monthly declines, it tended to rebound on average the following month, and the 20-day and 60-day divergence ratios and valuations (PER, PBR) were assessed to be near empirically bottoming levels, excluding the financial crisis and the COVID-19 pandemic.
Yet it warned that, in the mid to long term, pressure for foreign capital outflows could grow again.
IBK Securities highlighted five key variables: ▲ a peak-out in the leading economic index ▲ slowing growth momentum in 2027 ▲ a lagging inflation effect from higher oil prices and "chipflation" ▲ a turn to a stronger dollar ▲ and weaker investor sentiment for AI and semiconductors.
It singled out a slowdown in the economic cycle as the biggest factor.
Byun explained, "If the cyclical component of the leading economic index peaks out in the second half, it is likely to trend downward through 2027," adding, "From macro and top-down perspectives, this could significantly strengthen the rationale for foreign selling."
It also flagged the "lagging effect" in which inflationary pressure emerges with a time lag as a risk factor. The post-Iran crisis surge in oil prices and the rise in memory prices causing "chipflation" could flow from producer prices to consumer and core prices in sequence, increasing the burden on interest rates and the economy.
It also cautioned that expectations for AI and the semiconductor sector may pass their peak.
Byun said, "Through the first half, numerical concerns about a sentiment peak-out for AI and semiconductors were limited, but from the second half the likelihood of reflecting this has grown," adding, "The fact that semiconductor corporations' profit growth rate and U.S. hyperscalers' AI capital expenditure (capex) growth rate will slow next year could remain a persistent burden for foreign investors."
It also cited the foreign ownership ratio as a burden. Foreign investors' share of KOSPI holdings is currently about 39%, above the 10-year average of 33.7%, making it hard to rule out further equity reductions.
Accordingly, it advised distinguishing investment strategies between the short and mid terms.
Byun said, "The KOSPI is expected to reflect the process of passing a short-term bottom at the end of July, but the stronger the rebound trend toward the late second half or toward the June peak, the more foreign selling pressure could resurface," adding, "In the 6,000 range on the KOSPI, we recommend a buying strategy, and in the 8,000 range, respond with a gradual selling strategy while watching whether foreigners resume selling."