Although the KOSPI has been rebounding recently, an analysis said the "rotation" in which buying spreads across the broader market has not yet appeared. Foreign investors are taking profits whenever the KOSPI crosses the 7,000 level, and individual investors are also concentrating their buying only on Samsung Electronics and SK hynix, keeping funds from spreading to sectors other than semiconductors.
Kim Jun-young of iM Securities said in a report on the 27th, "In the short term, the market is moving on flows, news, and sentiment rather than fundamentals," adding, "The index needs to rise further for sector rotation to gain traction."
According to the report, the recent foreign flow has not improved as much as the market feels. Since July, the frequency of net buying has increased, but on a monthly basis it remains in net selling. In particular, it said a pattern has repeated in which, when the KOSPI closes above 7,000, the next trading day turns back to net selling.
In fact, foreign investors turned to net selling on the 16th, the day after the KOSPI hit 7,284, and also recorded net selling on the next trading day after the 23rd, when it closed at 7,096. The report interpreted this as foreigners perceiving the area around 7,000 as a neutral zone in terms of flows.
Individual investors' buying is also concentrated in semiconductors. After the index passed its peak, individuals posted net buying centered on Samsung Electronics and SK hynix, while showing net selling in other stocks. The explanation is that the experience over the past six months—that one had to buy semiconductors to generate profits—carried over into investment behavior.
Institutions showed a similar pattern. Excluding financial investment firms, institutions reduced their weights in Samsung Electronics and SK hynix, but no meaningful fund movement to other sectors was observed. It also assessed that the net buying by financial investment firms was largely driven by ETF program trading, making it hard to view as sector rotation.
The report also cited the high balance of margin credit as a burden. While the KOSPI has returned to late April levels, the margin balance remains at mid-May levels. The analysis said there is a possibility that, as the index rises, margin positions could come out for profit-taking.
However, the medium- to long-term outlook was seen as positive. iM Securities set the appropriate upper bound of the KOSPI on a valuation basis at the low 8,000s, with a short-term target of 8,400. It expects sector-by-sector rotation to gain momentum only after the index rises further, and suggested banks, defense, and energy as preferred sectors.