There are growing hopes that the "sell Korea" trend may be ending as foreigners, who were net sellers of more than 149 trillion won in the domestic stock market in the first half of the year, have recently turned to back-to-back net buying. The securities industry earlier this month cited improved semiconductor conditions from expanded AI investment, the exchange rate, and the domestic market's relative appeal as conditions needed for foreign capital to return (related article☞ When will the record "sell Korea" stop… four conditions to draw foreigners back), and some of these conditions have recently improved in the market.
However, the prevailing view is that it is still too early to say foreign fund flows have fully turned. On the day, foreigners were net sellers of more than 3 trillion won on the main board, again showing selling dominance. Analysts said it remains to be seen—by checking U.S. big tech earnings and the Federal Open Market Committee (FOMC) outcome—whether the recent net buying marks the start of a trend comeback or is a technical buy after a short-term plunge.
According to the Korea Exchange (KRX) and NEXTRADE (NXT) on the 24th, foreigners were net buyers totaling 7.0249 trillion won on the main board for four straight sessions from the 20th to the 23rd. So far this month, they posted net buying in 8 of 11 sessions. Compared with May (2 of 18 sessions) and June (4 of 21 sessions), the frequency of net buying has also increased.
Buying was concentrated in large-cap semiconductors. Over the past four sessions, they were net buyers of 1.434 trillion won in SK hynix and 1.377 trillion won in Samsung Electronics. A total of 2.811 trillion won flowed into just those two names, with about 45% of overall net buying concentrated in the semiconductor sector.
◇ AI investment worries, exchange rate improve… raising expectations for foreign return
The securities industry is focusing first on the easing of concerns about AI investment among the conditions for foreigners' return. While worries about a semiconductor cycle peak had grown as potential cuts to AI spending by U.S. big tech were raised, Alphabet recently beat market expectations with its second-quarter results and presented capital expenditure (CAPEX) plans, helping sentiment recover. The expectation that AI infrastructure investment could continue more solidly than expected has led to renewed confidence in the global semiconductor cycle, analysts said.
Lee Kyung-soo, a Hana Securities researcher, said, "Forecasts for CAPEX and net profit at U.S. big tech (hyperscalers) are clearly trending upward for both this year and next," adding, "Concerns about a semiconductor demand peak are overblown."
Exchange-rate conditions have also improved from early this month. The won-dollar rate, which had surged to around 1,550 won, has recently fallen to the 1,470-won range. As July gross domestic product (GDP) beat expectations and the likelihood of an additional rate hike by the Bank of Korea has grown, the won's weakness has somewhat eased. With exchange-rate pressures that had constrained foreign inflows easing, supply-demand conditions have turned more favorable than before.
Lee Jae-won, a Yuanta Securities Korea researcher, said, "The recently persistent weakness of the won was a factor that blocked foreign inflows," adding, "With July Korea GDP exceeding expectations and the likelihood of an additional rate hike by the Bank of Korea rising, the chance of exchange-rate stabilization is high." He added, "Foreign ownership in large-cap semiconductors is near historic lows, so if foreigners return, there is substantial room for net buying."
The price appeal of the domestic market has also improved compared with before. With valuation pressures eased significantly by large-scale selling in the first half and the recent plunge, and as AI investment worries ease and the exchange rate stabilizes, analysts say foreigners now have a case for bargain hunting.
◇ "A trend return is not here yet"… big tech earnings and the FOMC are the watershed
However, there are still hurdles to interpreting this net buying as a signal of a trend comeback by foreign capital. In addition to upcoming earnings from U.S. big tech such as Microsoft, Meta, and Amazon, and the July FOMC and Middle East geopolitical risks, the economy and dollar trend in the second half are also cited as variables.
Byun Jun-ho, an IBK Securities researcher, said, "Foreigners have recently reflected worries about a sentiment peak-out in macro, AI, and semiconductors and have been oversold in the short term, so additional selling pressure is expected to be limited," but added, "Looking at the second half and into next year, additional selling factors could continue to materialize."
He continued, "In the second half, key macro indicators such as the leading index, export growth rate, and gross domestic product (GDP) growth rate could slow, and since the stock market typically prices in next year's economy, worries about next year's fundamentals could grow," adding, "If a real deterioration in fundamentals is confirmed, there is a possibility that offers from foreigners looking to realize the profits they have recently made in the domestic market will reappear during the index rebound."
Noh Dong-gil, a Shinhan Investment & Securities researcher, also said, "The data show that the selling pressure by foreigners that had simultaneously continued in the cash and futures markets has eased since mid-July," but added, "A trend return is hard to confirm with just a day or two of net buying."